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Dipping dollar pounds European shares to 7-week low
Published in Saudi Press Agency on 01 - 12 - 2006


European shares pulled back to
7-week lows on Friday, with car exporters leading the march down
as weaker U.S. manufacturing data than expected sparked worries
of an economic slowdown and sent the dollar into a tailspin, according to Reuters.
Shares in retailers also came under pressure on fears of
squeezed consumption. Ahold fell 3.2 percent as it posted weak
margins at key U.S. units and warned of tough conditions,
overshadowing a slightly higher third-quarter net profit than
expected.
The pan-European FTSEurofirst index shed 0.8 percent to end
at 1,421.17 points, its lowest closing level since Oct. 10,
marking its third consecutive weekly loss.
The index fell 2 percent this week, and now stands 3.7
percent below a recent 5-1/2 year peak of 1,476.47.
Equity markets, which had been firm for most of the session,
turned tail after U.S. data showed a surprised contraction in
manufacturing and a sharp fall in construction spending,
pointing to a slowdown in the world's biggest economy.
"Even though the market was bracing for a weak reading after
the Chicago PMI, the November ISM is very bad news," said
Emmanuel Kragen, economist at Exane BNP Paribas. "It reflects a
sharp loss in activity momentum in the manufacturing sector and
a dip in investment."
The Institute for Supply Management said its national
factory activity index fell to 49.5 from 51.2 in October.
Historically, the Federal Reserve starts cutting interest
rates three to four months after the ISM slips below the 50
level, Kragen said, forecasting three U.S. rate cuts in 2007,
with the first one taking place in spring.
The prospect of a narrowing differential between U.S. rates
and euro-zone borrowing costs, which are forecast to rise
further, made the dollar less attractive, pushing the euro above
$1.33 for the first time since March 2005.
Carmakers, which traditionally make a large part of their
revenues overseas, were among the stocks hardest hit. Volkswagen
and DaimlerChrysler both fell 1 percent.
Another downward correction after this week's roller-coaster
ride cannot be ruled out next week as investors brace for a
European Central Bank's rate-setting meeting and U.S. November
payrolls data.
But confidence among some investors that economic growth,
although slower, will remain strong enough to fuel decent profit
growth, may put a floor under shares, strategists said.
On Friday though, European stock markets were a sorry sight.
Paris's CAC 40 fell 1.4 percent, Frankfurt's DAX trimmed 1.1
percent and the Swiss Market Index ended 0.8 percent lower in
Zurich.
But gains from selected mining stocks helped London's FTSE
100 index finish only 0.5 percent lower.
Technology shares weighed, tracking weakness in the Nasdaq
Composite and amid concern that less favourable economic
conditions might hurt their business activity. Shares in
Germany's SAP ended 2.6 percent lower.
On the upside, EADS gained 3 percent as a source close to
the aerospace giant's board said the company is 90 percent
certain to agree on Friday to finance the launch of Airbus's
planned A350 mid-size, long-haul jet.
And French power giant EDF surged 5.3 percent as a court
decision potentially paved the way for higher prices.


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