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Stocks buoyed by Fed news

January 23, 2008|Kim Murphy | Times Staff Writer

LONDON — European stock markets mostly rebounded Tuesday, getting a boost in late trading from the U.S. Federal Reserve's surprise interest rate cut.

There was no sign that the European Central Bank was ready to join the Fed in driving short-term rates lower, but some analysts said the Bank of England was likely to ease credit soon.

After plummeting Monday amid a global sell-off tied to worries about the U.S. economic outlook, most European markets opened lower Tuesday, then pulled up as bargain hunters jumped in. The Fed's announcement further encouraged buyers.

The French market's CAC share index, which sank 6.8% on Monday, ended Tuesday with a gain of 2.1%.

Britain's FTSE-100 index rose 2.9% after falling 5.5% on Monday. The Dutch market gained 2.6% after losing 6.1% in the previous session.

The German market, however, ended in the red, off 0.3% after a drop of 7.2% on Monday.

Some investors may have been hoping for concerted action by the world's central banks to ease credit.

Edmund Shing, equity strategist at BNP Paribas in Paris, said he expected the Bank of England to cut its key rate soon from 5.5% because Britain faced housing troubles similar to those in the U.S.

"The Bank of England clearly is going to lower rates as well," Shing said.

Housing prices have risen even more sharply in Britain than in the U.S. since 2001, and as in the U.S., a large number of mortgages are based on variable interest rates.

A spokesman for the Bank of England said the bank had no plans for an emergency meeting before its next scheduled meeting Feb. 6 and 7.

Iain Begg, visiting professor at the London School of Economics, said the Bank of England would be "praying or dropping hints" for the European Central Bank to cut rates as well, for a coordinated, Europe-wide response.

But some European Central Bank policymakers in recent days have continued to warn that they believed inflation was a greater risk than a slower economy. The ECB's key rate is at 4%.

"Eventually . . . the ECB will lower rates as well, but they'll be a bit later than the U.S. and the U.K.," Shing said.

From the standpoint of economic growth, the European bank may have less reason to cut rates, he said, because "the economic slowdown will be less pronounced in the euro zone than in the U.S. or the U.K."

Indeed, German Chancellor Angela Merkel said on a radio program that "there's no reason to believe in a recession in Germany or Europe."


Times staff writers Christian Retzlaff in Berlin and Tom Petruno in Los Angeles contributed to this report.

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