By Ishaq Siddiqi & Toby Anderson Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--European stocks markets traded cautiously Thursday, with continued concerns over euro-zone government debt pressuring bank stocks and taking the shine off a raft of healthy corporate earnings data and a buoyant resource sector.
At 1150 GMT, the Stoxx Europe 600 index was down 0.2% at 270.83. Among the regional indexes, London's FTSE 100 was 0.2% lower at 5807.13, Frankfurt's DAX was 0.1% lower at 6711.21 and Paris's CAC-40 was off 0.5% at 3866.43.
Concerns about euro-zone government debt pushed the yield spreads of 'peripheral' bonds against the German benchmark sharply wider again, with Irish government bonds hit particularly hard and the yield spread between 10-year Irish debt and 10-year German bunds hitting another record high at 637 basis points.
This put pressure on the region's banking sector, particularly those banks that are exposed to Ireland. Royal Bank of Scotland fell 3.8%, with traders citing the bank's exposure via Ulster Bank. In France, Credit Agricole fell 2.0% and BNP Paribas slid 1.5%, also on their exposure to Ireland's debt. "Higher sovereign yields mean higher funding costs for the banks which, in turn, lead to higher borrowing costs for consumers and businesses and thus lower economic activity," said Goodbody Stockbrokers. Overall, the Stoxx Europe 600 banks index fell 1.1% to 206.35.
Meanwhile, in the credit markets, Portugal's five-year sovereign credit default swap spread was 14 bps wider at 505 bps--the first time Portugal has traded over 500 bps--Ireland's rose 27 bps to 620 bps and Spain's was 15 bps higher at 294 bps, according to Markit. Earlier, Spanish gross domestic product data showed the country's timid economic recovery stalled in the third quarter as the result of weakening domestic demand.
These worries outweighed some more healthy corporate earnings data. Markets have focused on what could go wrong, and investors have bought the message from the bond market, and ignored the clear positive message from the corporate sector, said Philip Isherwood, equity strategist at Evolution Securities.
"A normal cycle, an extended upturn and corporate confidence--all point to upside for equities, not bonds. Bonds are the asset of choice as investors focus on the what could go wrong, not on what is actually going on," he said.
Meanwhile, the basic-resources sector posted strong gains as commodity prices remained firm, with copper jumping to a record high after China's inflation reached a two-year high, prompting investors to buy commodities. Shares in Xstrata rose 5.6%, while peer Antofagasta was up 5%. The Stoxx Europe 600 basic-resources index was up 2.0% at 601.92.
No major economic data are due from the U.S., where it is Veterans Day, but caution in Europe put pressure on New York stock index futures. By 1150 GMT, the December Dow Jones Industrial Average contract was off 0.3% at 11,262.0, while the S&P 500 contract for the same month was 0.5% lower at 1207.90.
Earlier in Asia, stock markets were mostly higher Thursday, with the Japanese market helped by a weaker yen and the rest of the region up on robust data from China.
Japan's Nikkei Stock Average closed up 0.3%, at its highest level in more than four months, but South Korea's Kospi Composite closed down 2.7%. Hong Kong's Hang Seng Index recovered earlier losses to trade 0.8% higher and China's Shanghai Composite added 1.0%.
In the European foreign exchanges, the euro fell as 'peripheral' yield spreads widened, while the dollar found itself attracting some support as G-20 leaders gathered in Seoul for a summit that is unlikely to prove successful.
At 1230 GMT, the euro was trading at $1.3703, down from $1.3783 in late New York trade Wednesday, while the dollar was at Y82.27, down from Y82.28.
Spot gold was at $1410.40 per troy ounce, up $6.20 from the level seen late in New York Wednesday, while the December Nymex crude oil futures contract was up 47 cents at $88.28 per barrel after the latest inventory data. The December bund contract was up 0.04 at 130.24 as investors sought the safety of core European debt as the focus remains on Ireland's debt woes.
-By Ishaq Siddiqi, Dow Jones Newswires; +44-20-7842-9488; ishaq.siddiqi@dowjones.com
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