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World stock markets fall as proposal by Europe leaders fails to calm investor nerves
BANGKOK (AP) ' World stock markets were mostly lower Friday after Germany continued to oppose a bigger role for the European Central Bank in managing the continent's debt crisis and Portugal's credit rating was lowered to junk.
Benchmark crude clung just above $96 a barrel while the dollar rose against the euro and was steady against the yen.
European shares were mixed in early trading. Britain's FTSE 100 fell 0.4 percent to 5,106.36 while Germany's DAX was 0.2 percent higher at 5,434.49/ France's CAC-40 rose 0.1 percent to 2,825.28.
Wall Street was headed for a lower opening, with Dow Jones industrial futures falling 0.2 percent to 11,209 while S&P 500 futures lost 0.2 percent to 1,157.30.
In Asia, trading was sluggish following a public holiday that closed markets in the U.S. Japan's Nikkei 225 index closed marginally down at 8,160.01 while South Korea's Kospi lost 1 percent at 1,776.40. Hong Kong's Hang Seng dropped 1.4 percent to 17,689.48 and Australia's S&P/ASX 200 shed 1.5 percent at 3,984.30.
In mainland China, the benchmark Shanghai Composite Index lost 0.7 percent to 2,380.22, its lowest closing level in a month.
Investment sentiment waned after a meeting Thursday in Strasbourg, France of the leaders of the three biggest euro economies: Italian Premier Mario Monti, French President Nicolas Sarkozy and German Chancellor Angela Merkel.
The three leaders pledged to push for changes to European Union treaties to bring the fiscal policies of countries using the euro common currency more in line with each other.
But many investors were hoping Merkel might drop her steadfast opposition to a greater role for the European Central Bank or the creation of a eurobond that would pool the debts of all countries in the currency union. Some experts believe the ECB is the only institution capable of getting Europe past its debt crisis.
Piled onto the disappointment from the Strasbourg summit was a debt demotion for Portugal.
Fitch Ratings, citing Portugal's large fiscal imbalances, its high indebtedness across all sectors and an adverse macroeconomic outlook, reduced the country's credit rating to BB+. That means Portugal is considered non-investment grade by Fitch, making it even more difficult for the struggling country to return to the bond markets.
Adding to the pain was Hungary, which was downgraded to junk by Moody's Investors Service late Thursday.
Analysts said many investors have concluded that Europe is likely headed for a slowdown or recession ' or even a breakup of the currency union ' given the inability so far to map out a plan for saving countries that are at risk of default because of unsustainable debt levels.
Such an event could engulf major banks and freeze credit markets in a similar fashion to the global financial paralysis after Lehman Brothers collapsed in 2008.
"Are we going to see a breakup of the euro or not? The comments and the downgrades overnight continue to worry investors," said Andrew Sullivan, principal sales trader at Piper Jaffray in Hong Kong.
"The inability to resolve the debt crisis and come out with a workable solution ' people have the obvious worry of what that will do to bond yields," Sullivan said. "This is a debt problem, and this is going to cost money to resolve."
Chinese banking shares sank following a day of gains based on speculation ' later denied by the government ' that the central bank was aiming to ease its tight monetary policy. Hong Kong-listed Agricultural Bank of China fell 2.9 percent and Industrial & Commercial Bank of China, the world's largest bank by market value, lost 1.4 percent.
Building materials and oil shares, which are closely tied to economic growth, fell as worries brewed about a global slowdown. Hong Kong-listed China National Building Material Co. fell 5.8 percent and China Coal Energy lost 5.3 percent. Australia's Woodside Petroleum Ltd. plunged 5.8 percent.
Tokyo-based camera and medical equipment company Olympus Corp. soared 8.6 percent. It earlier announced the resignations of three board members in an unfolding scandal involving a $687 million payment to an obscure Wall Street firm for financial advice and expensive acquisitions that were used to cover up investment losses dating to the 1990s.
In the U.S., where markets were closed for Thanksgiving on Thursday, traders were bracing for a crucial test of the world's No. 1 economy ' so-called Black Friday, the day that kicks off the holiday shopping season. How well retailers do will have consequences for the still-fragile U.S. economic recovery.
The November-December period accounts for 25 percent to 40 percent of annual sales. About a quarter of jobs in the U.S. are directly or indirectly supported by the retail industry.
Benchmark crude for January delivery was down 2 cents at $96.11 a barrel in electronic trading on the New York Mercantile Exchange. The contract last settled on Wednesday in New York at $96.17, down $1.84.
In currency trading, the euro fell to $1.3303 from $1.3326 late Wednesday in New York. The dollar was unchanged at 77.35 yen.
AP researcher Fu Ting contributed from Shanghai.