| LONDON, July 11
LONDON, July 11 European stocks opened firmer
and lower-rated government bond prices edged up on Friday, as
markets settled after a broad pullback overnight on concerns
about Portugal's banking sector that highlighted contagion risk
in the euro zone.
European shares were still on track to post a sharp weekly
loss as investors reassess stretched valuations for global
equities amid a slower-than-expected pace of economic recovery
in the euro zone.
The pan-European FTSEurofirst 300 index opened 0.4
percent higher, buoyed by gains across the region. Portugal's
PSI 20 index was up 1.5 percent after its biggest lender Banco
Espirito Santo reassured investors overnight over
financial troubles at its biggest shareholder.
Espirito Santo had plunged 19 percent on Thursday before
trading was halted, sending ripples across Europe, U.S. and Asia
trading and bucking a months-long trend of low volatility and
positive sentiment for stock markets driven by steady monetary
support from major central banks.
"The market is very confused at the moment with people not
sure about the strength of the economic recovery and worries
about structural issues that have not been resolved," Lex Van
Dam, a hedge fund manager at Hampstead Capital, said.
Fixed income markets were cautious, with German bund futures
trading flat. Peripheral euro zone bonds, a recent
winner for return-hungry investors, saw yields track lower after
a sharp rise on Thursday, with Portuguese 10-year yields
dropping 10 basis points to 3.91 percent.
"After the huge rally behind us in non-core bonds as well as
equities we've had a multitude of bad news...The market clearly
needed a trigger for profit-taking and that's what happened,"
said Jan von Gerich, chief fixed income analyst at Nordea.
"It's a reminder that volatility is not dead and that not
all the banking sector issues have been resolved."
Forex markets were largely steady, with the dollar
also flat against a basket of six major currencies.
In the U.K., shares were buoyed by merger hopes, with
Imperial Tobacco up 2.9 percent after saying it was in
talks with Reynolds and Lorillard to acquire
certain assets and brands that could be sold by the two
Moves in Asia had been generally modest with share markets
mixed. Hong Kong, South Korea, Taiwan and the Philippines lost
ground but China, Singapore and Australia eked out gains.
The MSCI Emerging Market index was down 0.4
percent, with emerging stocks set for the biggest weekly loss
since the end of May and Indian shares headed for their biggest
weekly loss since the end of January.
MSCI's broadest index of Asia-Pacific shares outside
Japan dipped 0.3 percent, while Japan's
Nikkei pared losses to end off 0.3 percent.
Investors had been encouraged by signs that funds were
taking money out of peripheral euro zone debt and seeking higher
returns in the emerging world. MSCI's index of emerging market
stocks actually rose on Thursday having hit a 17-month peak
earlier in the week.
As tensions in the Middle East simmered, Brent crude oil
was off 63 cents at $108.04 a barrel, while U.S.
crude lost 50 cents to $102.43.
(Additional reporting by Patrick Graham, Emelia
Sithole-Matarise and Tricia Wright; editing by John Stonestreet)