By Sara Sjolin, MarketWatch
LONDON (MarketWatch) — Most European stock markets closed lower Tuesday, but pared losses in late trade on reports that Greece was close to reaching an agreement needed to qualify for a second bailout.
The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP +1.11% closed 0.3% lower at 263.55, after trading as low as 261.62.
European markets pared losses on news that Greek government officials were drafting a final agreement on budget cuts to be presented to political leaders later in the day.
The French CAC 40 index /zigman2/quotes/210597958/delayed FR:PX1 +0.90% rose 0.2% to 3,411.54, recovering from an earlier low of 3,379.43. The British FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX +2.04% ended marginally lower, falling 0.03% to 5,890.26.
Greece’s major political parties had Monday and Tuesday been struggling to finalize details on another round of austerity measures, including wage cuts, intended to pave the way for what would be a second bailout package for Greece.
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“The demand for lower wages is the right direction for Greece as that is the only way to restore competitiveness within the euro system, which is also what normally happens in a flexible and free labor market,” said Peter Garnry, equity strategist at Saxo Bank, in emailed comments.
“But here lies the real issue as the country’s labor unions have tremendous power over the setting of wages, preventing the economy to adjust itself to the new economic situation.”
Without the bailout money, Greece will likely default on its roughly 14.5 billion euro ($19 billion) bond repayment due in March, and economists think this could lead to Greece’s exit from the euro.
“If Greece folds and leaves the euro, it will likely cause short-term turmoil in financial markets but longer term, it will only be a bump on the road for other euro members,” Garnry said.
The Athens General Index /zigman2/quotes/210597948/delayed GR:GD +1.37% rose 2.2% to 802.21, while Wall Street reversed early losses and pointed north in midday trade.
In deal news, Glencore International PLC /zigman2/quotes/201400686/delayed UK:GLEN +0.89% and Xstrata PLC said they agreed to an all-share merger of equals that would create a $90 billion natural-resources company. However, Standard Life Investments said it would vote against the merger, on the grounds that the current deal price undervalues Xstrata. Standard Life owns roughly 2% of Xstrata’s shares.
Shares of Xstrata dropped 4.9%, while Glencore closed 3.8% lower.
Elsewhere in the mining sector, Randgold Resources Ltd. declined 3.6%, Eurasian Natural Resources Corp. pulled back 2.6%, Antofagasta PLC /zigman2/quotes/200173667/delayed UK:ANTO +1.12% lost 2.1% and Kazakhmys PLC /zigman2/quotes/208098927/delayed UK:KAZ +1.29% shed 2.5% in London.
Also in Britain, drug maker GlaxoSmithKline /zigman2/quotes/200381158/delayed UK:GSK +2.26% /zigman2/quotes/209463850/composite GSK +2.15% fell 1%, while oil producer BP PLC /zigman2/quotes/207305210/composite BP +1.91% slipped 0.6%, both after reporting earnings.
In Germany, the DAX 30 index /zigman2/quotes/210597999/delayed DX:DAX +0.86% fell 0.2% to 6,754.20, as data showed that industrial output in the largest European economy unexpectedly fell by a seasonally adjusted 2.9% in December. Economists had forecast a 0.2% monthly increase.
Several heavyweight auto makers dropped in German trade. Shares of Daimler AG /zigman2/quotes/205332368/delayed DE:DAI +1.01% lost 1.8%, BMW AG /zigman2/quotes/209548467/delayed DE:BMW +1.01% pulled back 2% and Volkswagen AG /zigman2/quotes/206736865/delayed DE:VOW +1.32% declined 1.4%.
In Swiss trading, bank UBS AG /zigman2/quotes/206172872/composite UBS +2.07% lost 1.4% after reporting a 76% decline in fourth-quarter profit, while watch maker Swatch Group AG /zigman2/quotes/203516858/delayed CH:UHR +1.73% reported full-year earnings slightly below consensus estimates, with its shares dropping 4% in Zurich.
Also in the luxury sector, Burberry Group PLC /zigman2/quotes/205386705/delayed UK:BRBY +1.88% lost 1.8% and LVMH Moet Hennessy Louis Vuitton /zigman2/quotes/201350549/delayed FR:MC +2.22% dropped 2.6%.
In France, Renault SA /zigman2/quotes/200919924/delayed FR:RNO +0.86% fell 1%, Peugeot SA /zigman2/quotes/203546414/delayed FR:UG -0.38% shed 1.8%, while media conglomerate Lagardere S.C.A. /zigman2/quotes/206737784/delayed FR:MMB +2.13% sank 5.7% after warning of potential impairment losses of €900 million.
Among the biggest losers in the pan-European index, shares of Alfa Laval AB /zigman2/quotes/205826525/delayed SE:ALFA +0.45% slumped 7.1% after the company reported a smaller-than-expected increase in fourth-quarter profit as well as a sluggish outlook for the first quarter.
On a positive note, several European banks lent support to the broader stock markets. Banco Comercial Portugues S/A /zigman2/quotes/209833184/delayed PT:BCP +0.85% surged 20.6%, Banco Espirito Santo S/A rose 9.5%, UniCredit SpA /zigman2/quotes/200769686/delayed IT:UCG +1.32% added 4.7%, Skandinaviska Enskilda Banken AB /zigman2/quotes/201173722/delayed SE:SEB.A -1.34% climbed 4.9%, while Commerzbank AG /zigman2/quotes/200193353/delayed DE:CBK +1.67% gained 3.2%.