Stock market's rally falters; oil dips

LONDON: The stock markets' rally ran aground yesterday amid doubts over Europe's ability to solve its longer-term financial problems and expectation that the Federal Reserve will not seek to stimulate the US economy further this week.
Markets have been buoyant since last Thursday on hopes that European policymakers will back powerful new measures to battle the continent's debt crisis.
As so often before in the debt crisis, however, the risk is that Europe's leaders overpromise and under-deliver.
"Disappointment in the wake of the meetings could be severe if measures are not announced, or if those outlined are not deemed to be sufficiently impressive," said Chris Beauchamp, market analyst at IG Index.
In Europe, stocks lost their momentum and all main markets closed modestly lower.
Germany's DAX fell almost 0.1 percent to 6,772.26 while the CAC-40 in France fell 0.9 percent to 3,291.66. The FTSE 100 index of leading British shares shed 1.0 percent to 5,635.28.
US stocks traded lower, too, with the Dow Jones industrial average down 0.1 percent at 13,064.15 and the broader S&P 500 index almost 0.1 percent lower at 1,385.02.
Despite yesterday's retreat, stocks remain considerably higher than where they were last Thursday, when European Central Bank chief Mario Draghi ratcheted up expectations of a new plan.
His comments that the bank is "ready to do what it takes" to save the beleaguered currency, has led many in the markets to believe that the ECB will at the very least ramp up its bond-buying program at this Thursday's monthly policy meeting to keep a lid on Spain's and Italy's borrowing rates.
Draghi's statement of intent came at a particularly important time as Spain's borrowing costs surged to dangerous levels, raising the risk that one of Europe's biggest economies will need a bailout that would strain the euro currency union's finances.
Spain's borrowing rates remain high, certainly in comparison with strong euro economies like Germany. However, they are at manageable rates for now, with the ten-year bond yield at 6.64 percent. Anything above 7 percent is thought unsustainable in the long-run.
The euro was also solid, trading 0.4 percent higher at $1.2314 despite figures showing a record 17.8 million people were unemployed in the euro zone in June.
Markets aren't just focusing on Europe. The Federal Reserve starts its two-day policy meeting later in the day and investors will be keenly awaiting Wednesday's statement to see if it backs another monetary stimulus.
Earlier in Asia, Japan's Nikkei 225 stock average rose 0.7 percent to close at 8,695.06 and Hong Kong's Hang Seng gained 1.1 percent to 19,796.81. South Korea's Kospi rose 2.1 percent to 1,881.99 while Australia's S&P/ASX 200 climbed 0.6 percent to 4,269.20.
China's Shanghai Composite dipped 0.3 percent to finish at 2,103.63 as investors appeared unimpressed by a government announcement the day before that it will launch projects to attract private investments in energy, health and other industry sectors in an attempt to reverse an economic slump.
Oil prices fell yesterday. Benchmark US crude lost $1.93, or 2.2 percent, to $87.85 per barrel in New York, while Brent crude lost $1.58 to $104.62 per barrel in London.
In other energy futures trading, heating oil lost 5 cents to $2.84 per gallon, while wholesale gasoline lost 4 cents to $2.78 per gallon. Natural gas rose 2 cents to $3.23 per 1,000 cubic feet.