By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- Worse-than-expected U.S. services-sector
data and jobs figures dragged European stocks lower on Wednesday,
with caution also displayed ahead of the European Central Bank's
policy meeting.
The Stoxx Europe 600 index shaved off 0.9% to close at 294.80,
partly erasing a 1.3% jump from Tuesday.
Last week, the index closed out March with a 10th consecutive
monthly gain, boosted by aggressive easing measures from central
banks and hopes of a pick up in the global economic recovery.
But with the euro zone showing no signs of growth, there may not
be scope for much further upside, according to Guy Foster, head of
portfolio strategy at Brewin Dolphin.
"We are neutral on euro-zone equities. Valuations look
reasonable and things like the interest environment is slowly
improving. Nevertheless, there is not much excitement regarding the
top line," he said.
"We're looking for any signs of stabilization or improvement in
the economic numbers. There has been a fairly steady flow of
disappointing numbers and it's not immediately apparent what will
buck that trend," he added.
U.S. data
The broader stock markets were sent lower in afternoon action,
after the Institute for Supply Management said its U.S. services
index fell to 54.4% in March from a 12-month high of 56% in
February. Economists surveyed by MarketWatch had expected the index
to dip to 55.8%.
Additionally, Automatic Data Processing Inc. (ADP) said U.S.
private-sector employment expanded by 158,000 jobs in March, well
below expectations of a 215,000 gain. Markets look to ADP's report
on private-sector payrolls to provide some guidance on the closely
watched U.S. jobs report on Friday. U.S. stocks were lower.
"I wouldn't worry too much about the ADP report. The revisions
were pretty positive and the 200,000 added-jobs runrate remains
intact. For the time being we are pretty comfortable with the U.S.
employment numbers," Foster said.
"I think the headline unemployment rate will demand a bit of
attention on Friday," he added. "If the number of discouraged
workers change, it could mean unemployment would come down quite
fast. It would change the perspective for the Fed and could create
headwinds for the equity market."
Investors also awaited policy decisions from both the European
Central Bank and Bank of England due on Thursday. Both banks are
widely expected to keep rates on hold, although recent weak data
raised expectations the ECB could act to boost the economy.
"We expect the [ECB] governing council to discuss rate cuts, as
the recession has deepened across the euro area. We estimate the
likelihood of a rate cut is 25%," analysts at Danske Bank wrote in
a note.
"The main reason for the ECB to hold rates unchanged is that it
continues to expect the economy to improve in the medium term. In
addition, the monetary transmission mechanism remains broken so
that the real economy would not benefit fully from a rate cut,"
they added.
Cyprus got a slice of the limelight, as lawmakers and the
International Monetary Fund finalized an agreement that will see
the IMF contribute one billion euros ($1.28 billion) to the
country's bailout in addition to EUR9 billion from euro-zone
institutions.
Movers
Among notable movers, shares of Delhaize Group posted some of
the biggest losses in the index, down 4.9%, after HSBC cut the
supermarket operator to underweight from neutral.
Telecom firms were also in the downgrading spotlight, with
Telecom Italia SpA off 5.4% after UBS cut the firm to sell from
buy, while France Télécom lost 4.4% after the bank slashed the
rating to sell from neutral.
In the U.K., the FTSE 100 index lost 1.1% to 6,420.28. Shares of
Vodafone Group PLC (VOD) dropped 3.1%, after rising to its highest
level in more than five years on Tuesday on reports Verizon
Communications Inc. (VZ) and AT&T Inc. (T) were putting
together a takeover bid. Verizon said late Tuesday it has no plans
to merge with or make an offer for the U.K. telecom firm, although
stating it remains interested in buying Vodafone's 45% stake in
Verizon Wireless.
Mining firms also dropped in the U.K., after UBS downgraded the
materials sector to neutral from overweight. Shares of heavyweights
BHP Billiton PLC (BHP) and Rio Tinto PLC (RIO) both dropped 2%.
Metals prices were also lower across the board.
Germany's DAX 30 index closed 0.9% lower at 7,874.75, while
France's CAC 40 index lost 1.3% to 3,754.96.
Shares of AXA SA dropped 1.9% in Paris as HSBC Holdings PLC
(HBC) said it agreed to sell its Singapore insurance business to
the French insurer. HSBC fell 1.4%.
Outside the major indexes, shares of SBM Offshore NV fell 2.8%,
after the oil-services firm said it may have violated
anticorruption laws and could face penalties and criminal
prosecution.
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