By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets staged
broad-based losses on Tuesday, after some investors were
disappointed that the Bank of Japan refrained from taking fresh
steps to boost the economy, adding to anxiety about reduced easing
from central banks globally.
Investors were also cautious as a two-day hearing on the
legality of the European Central Bank's bond-buying program got
under way in Germany's constitutional court.
The Stoxx Europe 600 index lost 1.2% to close at 291.74, marking
the second straight day in the red.
Earlier in the year, the index climbed to a multiyear high,
buoyed by aggressive easing from central banks. But over the past
weeks, it has declined on worries the U.S. Federal Reserve will
reduce its asset purchases. The index has lost about 6% since its
almost five-year high on May 22, when Fed Chairman Ben Bernanke
spooked investors with comments about tapering quantitative easing
if data continue to improve.
"The recent optimism has not really been justified and you can
see that by today's reaction," said Predrag Dukic, senior equity
sales trader at CM Capital Markets in Madrid. "Something we forget
to look at is fundamentals and when we look at growth, budget
deficits and unemployment [in the euro zone], all these factors are
not giving us much hope for a significant recovery. Greece, Spain,
Italy and perhaps even France are still countries that have a lot
of work to do and they have not done enough to justify the rally we
had."
"The markets will not correct greatly though--this is simply
pricing in QE3 stopping and we obviously got the holiday season
coming and people may be looking ahead to the summer and unwinding
their positions before their vacations," he added.
Among notable movers in the pan-European index, shares of ICAP
PLC gave up 3.6% after Credit Suisse cut the interdealer broker to
underperform from neutral.
Mining firms were also lower, as metals prices dropped across
the board. Shares of Anglo American PLC fell 3.5%, BHP Billiton PLC
(BHP) gave up 1.6% and Rio Tinto PLC (RIO) shaved off 1.4%.
Bank of Japan fails to boost optimism
For the broader European stock markets, investors took a hint
from Asia, where most bourses closed in the red after the Bank of
Japan's decision to keep its asset-buying and other policy elements
unchanged. The lack of action was widely expected, though some
market participants had hoped the central bank would extend its
low-price fund-supplying operation. The yen rose sharply against
the dollar after the decision and pushed stocks lower.
"By not announcing new easing measures today, BOJ has probably
done itself a favor in the long run. The economy is moving in the
right direction, and so far the correction in the financial markets
is not a threat to the recovery," analysts at Danske Bank said in a
note.
"It is important to understand that despite no announcement
today, BOJ is still easing aggressively. A massive amount of
liquidity will continue to be injected into the economy over the
coming months and monetary easing is still at an early stage," they
added.
In the U.S., stocks traded with minor losses, as worries the
Federal Reserve will begin to taper its quantitative easing program
continued to haunt investors.
Back in Europe, the ECB's Outright Monetary Transactions program
was in the spotlight, as a two-day court hearing got under way in
Germany's constitutional court. The hearing focuses on the
legitimacy of the program, which the Bundesbank and several
politicians say undermines central bank independence and infringes
on a ban of monetary financing. See: High Noon for the euro in
Karlsruhe court
ECB President Mario Draghi said in an interview with German
television that "not a single cent has been spent" on the program,
but just the existence of such a mechanism is mainly responsible
for the easing fears of the euro zone breaking up. Read: Just say
no to ECB bond-buying: Buba chief
After the OMT announcement last summer, government bond yields
for struggling euro-zone countries such as Spain and Italy have
come down significantly, while the stock Stoxx 600 in May closed
higher for a 12th consecutive month.
Movers
Most indexes, however, tanked on Tuesday, with Greece's Athex
Composite down 4.7% at 895.86. Reuters reported that the country
will miss its asset sale target by about 1 billion euros ($1.3
billion) this year, after Russian energy giant Gazprom withdrew its
interest in Greece's natural gas firm DEPA on Monday. See: That
hissing noise out of Greece could mean trouble for the euro
zone
Germany's DAX 30 index dropped 1% to 8,222.46, weighed by
Deutsche Bank AG (DB), down 2%.
On a more upbeat note in Germany, shares of Infineon
Technologies AG climbed 3.3% after Citigroup lifted the chip maker
to buy from neutral, according to Dow Jones Newswires.
France's CAC 40 index gave up 1.4% to 3,810.56. Shares of
LeGrand SA slumped 4.1% after investment firm Wendel said it
completed the sale of its remaining 5.4% stake the French
electrical-equipment company.
The U.K.'s FTSE 100 index slid 0.9% to 6,340.08.
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