By Andrea Tryphonides Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--European stocks were mixed Thursday as all the major markets took a breather after the solid gains of the previous session and as traders took a step back, waiting for the next round of European bond auctions.
Following the successful Portuguese auction Wednesday, hopes were high for Italy and particularly Spain, which have all become embroiled in the euro zone's sovereign-debt crisis.
"Supply events are driving short-run market dynamics on both sides of the Atlantic," said Lloyds Bank Corporate Markets.
"In the very short term we would not be surprised if markets used the Portuguese auction results--paying a high yield, but well digested--as a template or benchmark for the upcoming 'peripheral' supply, starting with Spanish and Italian auctions today."
The Spanish and Italian auction results are due at around 0945 GMT and 1015 GMT respectively.
By 0920 GMT, the Stoxx Europe 600 index was down 0.3% at 284.79. London's FTSE 100 was 0.4% lower at 6025.75 but Frankfurt's DAX was flat at 7068.04 and Paris's CAC-40 gained 0.1% to 3946.97.
The Stoxx Europe 600 banks index was up 0.7% at 212.02, extending the strong gains seen in the previous session as investors remained cautiously optimistic about the upcoming auctions. Yield spreads on non-core euro-zone government bonds were largely stable ahead of them.
Also on the agenda Thursday are central bank interest-rate announcements, first from the Bank of England at 1200 GMT and then from the European Central Bank at 1245 GMT. No change is expected from either, although the ECB's press conference at 1330 GMT will be watched closely for any comments about sovereign debt and ECB bond buying.
Elwin de Groot, senior market economist at Rabobank, agreed the ECB will not announce any changes in its policy stance. On purchases of sovereign debt, he commented: "Although the ECB is said to have been more active this week, ahead of important bond auctions by Portugal, Spain and Italy, we expect {ECB president Jean-Claude] Trichet to underscore that the ECB's interventions are aimed at preventing dysfunctional markets and not to depress yield spreads in a lasting manner."
The spotlight was also on the retail sector Thursday, after a swathe of mixed results from the Christmas trading period.
On the downside, Tesco fell 2.2% to 414.40 pence as it reported weaker-than-expected U.K. Christmas sales, falling behind its rivals, although internationally its performance was strong. Among other retailers reporting sales, Home Retail group rose 6.3% while Dixons Retail fell 6.5%. The Stoxx Europe 600 retail index fell 0.1% to 275.32.
Earlier, Asian stock markets were mostly higher Thursday, as sentiment was boosted by the successful Portuguese bond auction Wednesday, but Korean shares lost early gains after the central bank surprised the market with an interest-rate hike.
Japan's Nikkei Stock Average gained 0.7% and Australia's S&P/ASX 200 tacked on 1.5% but South Korea's Kospi Composite fell 0.3%. Hong Kong's Hang Seng Index climbed 0.5% and China's Shanghai Composite increased by 0.2%.
The Nikkei touched a new eight-month high of 10,620.57, helped by the better-than-expected Portuguese auction as well as the yen's recent weakness against the euro.
Similarly, U.S. stocks closed in the black Wednesday after the Portuguese government debt auction eased immediate worries about the euro zone.
The Dow Jones Industrial Average finished 0.7% higher at 11,755.44, while the Standard & Poor's 500-stock index rose 0.9% to 1285.96 and the Nasdaq Composite gained 0.8% to 2737.33.
Bank shares fared well in the U.S. as financials led the gains after Wells Fargo upgraded its assessment of the banking sector.
JPMorgan Chase and Bank of America were among the best performers of the Dow components, gaining 2.6% and 2.0% respectively.
In the European foreign exchanges, the euro extended its gains against the dollar and the yen after the single currency's surge Wednesday.
At 0925 GMT, the euro was trading at $1.3163, up from $1.3131 in late New York trade Wednesday. The dollar was at Y83.04, barely changed.
Elsewhere, spot gold was at $1384.00 per troy ounce, down $4.20 from New York Wednesday. And Nymex February crude oil futures were down a cent at $91.85 per barrel. But March bund futures were up 0.03 at 124.72.
On the economic agenda, U.K. industrial production is expected at 0930 GMT.
In the U.S., initial jobless claims are released at 1330 GMT alongside the November trade balance and December producer prices.
-By Andrea Tryphonides, Dow Jones Newswires; +44-20-7842-9281; andrea.tryphonides@dowjones.com
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