European stocks are expected to start in the red and the euro is
set to remain weak against the dollar after hopes were dashed that
there would be a round of stimulus plans from the world's central
banks.
Federal Reserve Chairman Ben Bernanke stopped short of signaling
new stimulus measures in his testimony before Congress
Thursday.
Mr. Bernanke seemed to echo the sentiment of European Central
Bank President Mario Draghi this week, who also preferred to hold
tight on introducing any new stimulus plans and reiterated that
European leaders need to act fast to address the euro-zone's
escalating debt crisis.
Mr. Bernanke said the Fed was prepared to take action to boost
the U.S. economy if needed, but stopped short of signaling further
easing ahead of the June 19-20 Federal Open Market Committee,
saying Fed officials are still working on assessing the outlook and
deciding whether to act. But the People's Bank of China lowered its
benchmark interest rate Thursday for the first time since 2008.
The benchmark Stoxx 600 index has risen for three consecutive
sessions this week, partly on hopes that a boost will be given to
the Western economies by central banks, following the escalation in
the euro-zone economic crisis and after recent downbeat economic
data.
"As markets appear to be caught between potential policy easing
around the world and elevated uncertainties due to the euro-zone
crisis, markets are likely to be traded in a range with choppy
sessions ahead," said Credit Agricole Corporate & Investment
Bank in a note to clients.
Jonathan Sudaria, dealer at Capital Spreads called the UK's FTSE
100 to start down 33 points, or 0.6% lower, at 5415, Germany's DAX
down 36, or 0.6%, at 6108 and France's CAC-40 down 28, or 0.9%, at
3043.
In foreign exchanges, the euro was lower against the dollar
after the Fed disappointed markets, denting risk sentiment. At 0610
GMT, the euro was at $1.2525, weaker than $1.2561 late Thursday in
New York. The dollar was at Y79.40, down from Y79.63.
Investors will also be keeping a close eye on Spanish bond
yields and the performance of Spanish banking stocks, after ratings
firm Fitch downgraded Spain by three notches to BBB from A, late on
Thursday.
Concerns about the Spanish banking system have escalated in
recent weeks, particularly after the EUR19 billion bailout of
Bankia SA on May 28 and after the rising cost of Spain's
borrowing.
In the U.S. the Dow industrials rose for the third straight
session, fueled by China's moves to stir growth, but its early
rally faded after the Fed offered little new direction.
The Dow Jones Industrial Average climbed 0.4% to 12460.96 on
Thursday, one session after the blue-chip benchmark notched its
biggest gains of the year. Standard & Poor's 500-stock index
closed flat at 1314.99, while the Nasdaq Composite lost 0.5% to
2831.02. Both benchmarks gave back strong gains in the final
minutes session to snap three-session streaks of gains.
Asian shares fell Friday on disappointment that the Federal
Reserve failed to commit to further easing while the interest-rate
cut out of China raised concerns that Asia's biggest economy is
slowing faster than previously expected.
The move by the PBOC came ahead of the release of an array of
economic data for May expected this weekend. Last week China posted
weak manufacturing reports and analysts aren't optimistic about
upcoming data.
There were also other negative signs out of China, as China
Investment Corp. Chairman Lou Jiwei was downbeat on the European
debt crisis in an interview with The Wall Street Journal. The head
of China's sovereign-wealth fund said that he saw a risk of a
breakup in the euro zone, and that the fund has scaled back its
holding of stocks and bonds across the continent.
Japan's Nikkei Average was down by 2.3%, Hong Kong's Hang Seng
Index was down 0.7%, the China Shanghai Composite was 0.1% lower,
and Australia's S&P ASX 200 dropped 1.0%.
Meanwhile, the July Nymex crude futures contract was down $1.94
at $82.88. The Brent crude futures contract was $1.56 lower at
$98.37. Spot gold fell $18.40 to $1571.00. With equities and other
risk assets out of favor, the September bund was up 0.38 at
143.44.
There are no euro-zone economic data of note during the European
session Friday. U.K. producer price index data for May are expected
at 0830 GMT.
Write to Andrea Tryphonides at
andrea.tryphonides@dowjones.com