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Asian stocks sputtered at the start of the year as tightening fears held back the Indian and Chinese markets but Tokyo had its best first week in 15 years.
The FTSE Asia-Pacific index slipped 0.3 per cent to 264.48, its first negative week for a month, falling away from Tuesday’s 30-month highs as the market mood was dominated early on by optimism over global growth. But inflation fears gripping Mumbai and Shanghai sapped sentiment as the week progressed.
Banks in the line of fire of the sell-off included State Bank of India, the country’s top lender, which sank 7.4 per cent to Rs2,601 over the week. HDFC, the nation’s third-largest, dropped 3 per cent to Rs2,269.45 while Axis Bank, the fourth- largest, declined 5 per cent to Rs1,280.65 after its rating was lowered by RBS Equities India.
Sydney stocks on the S&P/ASX 200 index fell 0.9 per cent to 4,705.04 as the economic impact of severe flooding in Queensland and volatile commodity prices dented sentiment.
Rio Tinto, which has mining operations affected by the flooding, dropped 1.2 per cent to A$84.48 while peer BHP Billiton was off 1.4 per cent at A$44.62.
But the Nikkei 225 Average in Toyko surged to eight-month highs this week, rising 3.1 per cent to 10.541.04 on a weaker yen boosting exporters and healthy foreign fund flows. The broader Topix also rose 3.1 per cent to 926.42, its best yearly start since 1996.
For the week as a whole, European equities made strong gains. The FTSE Eurofirst 300 index was up 2 per cent, bouncing back from a poor final week in December which saw the index down 2.3 per cent in thin trading.
December 2010 had seen 5.1 per cent gains as traders took an optimistic view on equities for 2011, This sanguine attitude continued in the first few days of trading in the new year, helped by healthy US jobs data mid-week from ADP Employer Services.
Transocean, the Swiss-listed oil rig contractor and owner of the Deepwater Horizon drilling platform that exploded in the Gulf of Mexico in April, saw healthy gains after a US government report into the oil spill stopped short of raising concern in the market that the costs associated with the spill would be more significant than levels already factored into stock prices.
Transocean was up 12.7 per cent to SFr72.20.
European financials lost ground, weighing on wider indices, after concerns over the eurozone sovereign debt crisis were revived by a European Commission report on how to deal with banking failures in the future.
The report, released on Thursday, proposed that senior bondholders should share the pain of any future bank failures to reduce the burden on taxpayers. This caused sovereign bond yields to spike up across the region and many financial stocks to sink to decade-long lows.
On Friday, in Portugal, Banco Espirito Santo dropped to a 14-year low, falling 5.6 per cent to €2.64, while Banco BPI also sank to a 14-year low, declining 2.9 per cent to €1.32.
In Spain, Bankinter was sent to a 13-year low, losing 3.2 per cent to €3.89, while Banco Popular fell to a one-year low, down 2.3 per cent to €3.66.
Adding to investor concern was news that the Swiss National Bank had stopped accepting Portuguese government securities as collateral for repurchase agreements.
The S&P 500 was down 0.4 per cent to 1,268.40 by midday, higher by 0.9 per cent over the week.
The Dow Jones Industrial Average was 0.4 per cent lower at 11,652.21, adding 0.6 per cent over the five days, and the Nasdaq Composite had edged down 0.4 per cent to 2,698.69 but was up 1.7 per cent on the week.
US stocks have had a positive start to the year but Thomas Lee, equity strategist at JPMorgan, said this could point to a pause in the rally in March or April.
He said that historically positive investor sentiment surveys had been followed by a pullback within 60 to 70 days.
AIG, the bailed-out insurer, rose 1.4 per cent to $61.31 after it said it was on track to complete a recapitalisation as soon as next week. The board has approved a plan to give warrants to non-government shareholders enabling them to buy shares at $45, as a sweetener to the substantial dilution that will occur when the Treasury assumes its 92.1 per cent stake.
Diamond Offshore rose 4.3 per cent to $70.15 after analysts at Goldman Sachs raised the deep water oil driller’s rating from “sell” to “conviction buy” and said there could be 25 per cent upside to the share price.
Baker Hughes also benefited from a Goldman upgrade, jumping 4.5 per cent to $57.28, after analysts upgraded the oilfield services provider from “neutral” to “buy”, saying they expected the difference between its margins and those of its peers to narrow.
Falling financials led US stocks lower after the US economy added fewer jobs than expected in December, and there were fears that some home foreclosures could be invalidated.
But financials also suffered as one of the sectors most exposed to the sluggish economic recovery.
JPMorgan fell 3 per cent to $43.17, Morgan Stanley declined by 1.4 per cent to $28.41 and Bank of America lost 2.2 per cent to $14.12.
Payrolls increased by 103,000 compared with an average estimate of 150,000. Some economists had revised their figures higher after Wednesday’s ADP report showed a surprisingly large leap in employment. The unemployment rate, which was forecast to fall from 9.8 per cent to 9.7 per cent, actually declined further – down to 9.4 per cent.
Citigroup fell 0.8 per cent to $4.91 after sources said that the bank was seeking buyers for CitiFinancial, the largest consumer finance company in the US. The deal could raise hundreds of millions of dollars.