NEWS / Central Banks

Rate hikes hit Euro bourses

LONDON: European stock markets closed lower yesterday, with shares in London hit by a surprise decision by the Bank of England to raise interest rates, dealers said.In London the FTSE 100 index of leading shares fell 1.58% to close at 5,838.40 points, in Frankfurt the Dax lost 0.72% to 5,640.03 points and in Paris the CAC 40 closed 0.85% lower at 4,983.68.

The DJ Euro Stoxx 50 index of leading eurozone shares fell 0.77% to 3,667.91 points.

The Bank of England unveiled a surprise quarter-point interest rate rise to 4.75%, its first rate change in a year, to control inflation and prevent economic overheating.

The decision took analysts and traders by surprise. They had expected the British central bank to hold rates steady.

A rate decision by the European Central Bank, also on Thursday, was in line with expectations.

The ECB raised its key interest rates by 0.25 percentage points to 3%.

Interest rate decisions are closely tracked by global stock markets because they affect consumer spending levels and company borrowing costs, which have a direct impact on corporate profits.

Wall Street shares were weighed down after Ford Motor Co restated its second-quarter loss to more than double its initial estimate.

Traders also said concern was mounting that the Federal Reserve might continue its rate hiking cycle next week as the market awaited the release of a key jobs report on Friday.

In early afternoon deals, the Dow Jones Industrial Average was up 0.06% at 11,206.17, after spending all morning lower. The technology-weighted Nasdaq index was 0.26% lower at 2,073.40.

The Standard & Poor??™s 500 index was down 0.24% at 1,275.46.

In Paris trade, French oil giant Total shed 0.76% to 52 euros.

Total, the fourth-biggest oil group in the world, said that net profit increased by 16% to 6.74bn euros ($8.6bn) in the first half of the year, driven by high oil prices.

One broker in Paris, who declined to be named, commented: "The results for the second quarter are not so good. In fact they are disappointing. They fall short of expectations with regard to net profit and for production levels."

In London, shares in Rio Tinto fell 1.14% to 2,775 pence as ongoing volatility in the mining sector overshadowed better-than-expected interim numbers from the group, dealers said.

Elsewhere in Europe, in Madrid the Ibex35 fell 0.53% to 11,800.7 points, in Brussels the Bel 20 fell 0.50% to 3,788.99, in Milan the Sp/Mib fell 0.72% to 36,474 and in Amsterdam the AEX closed down 1.02% at 450.65 points. The Swiss SMI index shed 1.20% to 7,810.04 points.

The euro was stable against the dollar while the pound raced ahead after rate decisions by the European Central Bank and the Bank of England.

The euro gained fractionally to $1.2785 in late European trading, compared with $1.2783 late in New York on Wednesday. It fell to ??0.6777 from ??0.6811 late on Wednesday.

The dollar firmed to ??115.21 from ??114.67 late on Wednesday.

The pound rose to $1.8861 from $1.8761 late on Wednesday.

On the London Bullion Market, the price of an ounce of gold dropped to $640.40 per ounce, from $654.40 late on Wednesday. ??“ AFP