European stocks, euro edge lower as QE rally pauses

Mon Sep 17, 2012 6:36am EDT
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By Simon Jessop

LONDON (Reuters) - European stocks and the euro both eased on Monday, beginning a new week in cautious fashion after the prospect of fresh U.S. economic stimulus propelled both to multi-month highs in the previous session.

Promised support from the U.S. and euro zone central banks should see both push on to fresh highs in the coming weeks, traders said. The Federal Reserve announced last week that it plans to pump an extra $40 billion a month into the economy until jobs data improves, while the European Central Bank outlined its new bond-buying initiative earlier in the month.

At 0842 GMT, the FTSEurofirst 300 index of leading European stocks was down 0.2 percent at 1,118.18 points, pulling back from a 14-month high hit in the previous session. World stocks were also down 0.2 percent.

Asian stocks were generally higher overnight, with the MSCI Asia ex-Japan index hitting a 4-1/2 month high, although Tokyo markets were closed. U.S. stocks ended Friday near five-year highs.

"There is still good upside potential for stocks as we are re-pricing the 'non-break up' of the euro zone. We've just started to realise all the downside that came from the debt crisis," Louis Capital Markets trader Jerome Troin-Lajous said.

"Now, the main signal we need that would fuel this rally won't be coming from the economic outlook, it will come from the investment flows. A lot of foreign investors have been strongly 'underweight' European stocks and should start to switch out of bonds and out of U.S. equities and into European stocks."

Fund flow data from EPFR showed Europe equity funds posted their biggest net inflows since early May in the week to September 12, as the ECB action encouraged more investors to take on equity risk and move out of conservative debt.

While risk markets should get a filip from the U.S. stimulus plan, growth is ultimately needed to sustain any recovery, and here concerns remain.   Continued...

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange September 14, 2012. REUTERS/Remote/Amanda Andersen