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World markets stumble amid US bank, earnings fears

LONDON -World stock markets stumbled Tuesday as fresh concerns about banks and upcoming earnings results from U.S. companies led many investors to book profits following a strong global rally in recent weeks.

Britain’s FTSE 100 closed down 1.6 percent to 3,930.52, Germany’s DAX slipped 0.6 percent to 4,322.50, and France’s CAC 40 dropped 0.9 percent to 2,902.31.

In morning trading in New York, the Dow Jones industrial average lost 2 percent at 7,813.77 and the Standard & Poor’s 500 index tumbled 1.8 percent to 820.77.

Most major Asian markets also suffered losses, tracking overnight selling that pulled Wall Street lower for the first time in five days.

Resurgent fears about the banking sector were partly to blame after analysts warned the financial crisis is not yet over. Calyon Securities said America’s bank losses could exceed Depression-era levels and that government actions might not help as much as expected.

Word that the International Monetary Fund was set to forecast $4 trillion in bad assets on banks’ books added to concerns about the financial industry and pulled most bank stocks lower. Published by The Times of London, the report underscored investors’ fears that the U.S. government’s recent efforts to purge banks of troublesome loans might not work.

Investors were also worried about quarterly earning results by U.S. corporations, starting with aluminum giant Alcoa after the close of the market Tuesday. The company is expected to report a loss, setting the tone for potentially more dismal results to come.

In London, Royal Bank of Scotland led the financials lower, its shares falling 10 percent after the company said it could cut as many as 9,000 jobs globally over the next two years as its restructures its back office operations.

In Europe, economic data was dismal, with the EU’s statistics agency reporting a 1.6 percent contraction in eurozone economies in the fourth quarter of 2008. That is worse than the Eurostat’s preliminary estimate of a 1.5 percent drop in gross domestic product, and economists expect economic activity to keep contracting. In Britain, industrial output sank for a 12th consecutive month.

German automakers Daimler and BMW said a reluctance by consumers to spend on luxury autos trimmed first quarter sales — but Porsche reported an increase in Germany. Despite Porsche’s gain, all three companies traded lower. Daimler lost 1.5 percent, BMW 4.4 percent and Porsche 4.4 percent.

“We are about to start the earnings season so there is caution ahead of that,” said Stephen Pope, chief global markets strategist for Cantor Fitzgerald. “Market participation is a bit thin because we’re in the run-up to Easter, so movements get a bit exaggerated.

“Today is characterized by a defensive mood, a defensive play — just guard your positions, ringfencing any profits you have made in the last few weeks ahead of the kickoff to earnings season,” he added.

After a four-week bull run that’s driven some markets higher by 20 percent or more, investors are becoming more skittish as they brace for another round of selling.

“All the markets have risen sharply in the last few weeks and the markets are overbought,” said Peter Lai, investment manager at DBS Vickers in Hong Kong. “Many people are now waiting for news or economic figures as an excuse to take profits, and some smart funds are already selling.”

Japan’s Nikkei 225 stock average closed down 0.3 percent at 8,832.85 even as the Bank of Japan unveiled new steps to spur lending and corporate financing. The central bank also announced it was keeping its benchmark interest rate unchanged at a super low 0.1 percent, as was widely expected.

Elsewhere in Asia, Hong Kong’s Hang Seng fell 0.5 percent to 14,928.97 and South Korea’s Kospi added 0.2 percent to 1,300.10.

Australia’s key index dropped 1.3 percent as the country’s central bank cut its key interest rate by a further quarter percentage point to 3 percent. Markets in Singapore and Malaysia also lost ground while those in Shanghai and Taiwan gained. India was closed for a public holiday.

Investors sold down a number of banks across Asia. Mizuho Financial Group Inc. shed 2.5 percent in Tokyo and leading Australian investment bank Macquarie Group tumbled 4.9 percent.

Commodity firms also came under pressure. Rio Tinto Group, the world’s No. 3 mining company, plunged 10 percent in Sydney after announcing plans to cut more than 700 jobs at Australian mines due to a drop in aluminum demand and prices. There was also market speculation the commodities giant may look to raise capital through new shares should its deal with Aluminum Corp. of China founder.

Oil fell in European trading as investors considered whether crude’s two-month rally can be sustained while global demand remains weak. Benchmark crude for May delivery fell $1.32 to $49.73 a barrel. The contract fell $1.46 on Monday to settle at $51.05.

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