European share markets heaved a
collective sigh of relief and clawed back some or all of their
early losses on Monday when Wall Street held its nerve after
Compaq's shock earning's forecast.
The rally in shares also aided the dollar which had wobbled
earlier on fears that international investors might be about to
sell U.S. assets.
The Dow Jones industrial index of leading U.S. shares was up
around 0.3 percent shortly after London closed, having opened
The world's most closely watched share benchmark was rattled
by the warning from personal computer maker Compaq late on
Friday that it expected a first quarter profit of about $0.15 a
share, about half Wall Street's expectations.
But the fall presented investors with a buying opportunity
and prices duly rallied, U.S.-based traders said.
European stocks behaved
similarly, having been sharply lower in early trade when they
had a two percent fall in Japanese shares to digest.
London's FTSE index picked itself off its lows to end down
0.5 percent from Friday's record close, only its second decline
of the past 11 sessions.
The index was led lower by losses in telecom stocks
including British Telecom which shed 0.8 percent.
Analysts said the Compaq warning helped undermine the
expensive valuations of "growth" stocks in the British
technology and telecom sectors, contrasting with the low ratings
elsewhere in the British equity market.
"Some of these [highly-rated] stocks could be very
vulnerable and the FTSE 100 looks due a setback," said Patrick
Evershed, manager of a special situations fund at money manager
The pattern was similar in Paris where stocks rallied to
close near Friday's record finish, shrugging off U.S. earnings
"We had the Compaq story this morning but people didn't
sell the cash, they sold the futures. This afternoon we've seen
huge buying of the futures by U.S. houses," a trader in Paris
Automaker Renault was the biggest gainer on CAC-40, rising
5.6 percent, after Chairman Louis Schweitzer said in an
interview that it did not rule out a sale of Nissan Diesel.
In Frankfurt, Germany's Xetra DAX ended up 0.66 percent as
positive sentiment from last week's euro zone interest rate cut
helped cancel out the weak start on Wall Street and a sharp fall
in Deutsche Bank shares.
The index was buoyed by a 0.87 percent gain in Deutsche
Telekom, which traders said attracted buyers ahead of its
earnings news conference due on Thursday.
Prices remained supported by the European Central Bank's
larger-than-expected interest rate cut late last Thursday, when
the ECB cut key rates by 50 basis points to 2.5 percent.
Earlier, the DAX was down around one percent. Sentiment was
also depressed by a slide in Deutsche Bank shares, which shed
around three percent on a rights offering to fund the purchase
of Bankers Trust.
In currencies, the dollar's losses were stemmed when
expectations of huge losses for U.S. equity prices failed to
materialize, analysts said.
During the session the dollar touched a 1-1/2-week low
against the yen and matched lows set against the euro last week
as traders tried to price in a sharp early drop in the Dow Jones
"The dollar has steadied with the Dow, but it is still
under pressure," said Nick Shamim, bond and currency strategist
at Norinchukin International Plc.
"Dollar weakness this morning was based on expected
weakness in U.S. equity prices, purely on the Compaq profit
The Compaq warning provoked a flurry of long dollar position
squaring during European trade which saw dollar/yen touch a low
of 119.74. Euro/dollar was quoted at $1.0840/42 from $1.0780/82
Shamim said much of the short-covering in euro/dollar was
based on the realization that interest rates in the euro zone,
after last week's cut to 2.50 percent, would be on hold for the
Comments by ECB chief Wim Duisenberg last week that the 50
basis points reduction was made to remove any expectation of
another cut soon also assisted the euro.