Year-end factors affecting stocks ahead of US data

LONDON (AP) — German and Japanese stocks led a retreat in global markets Thursday on their last trading day of the year. A batch of U.S. economic reports later could well determine whether other markets retreat too.

Year-end trading is often complicated by traders closing out position to present their portfolios in as best a light as possible — after all bonuses are often dependent on how well those portfolios have actually performed.

In Europe, the FTSE 100 index of leading British shares was down just over 3 points at 5,992.90 while France’s CAC-40 fell 27.54 points, or 0.7 percent, to 3,863.11. Germany’s DAX was down 71.45 points, or 1 percent, at 6,924.02 on its last trading day of the year. It if closes at its current level, it will still end up gaining just over 1,000 points, or around 16 percent.

Wall Street was poised for a steady opening later following muted gains Wednesday — Dow futures were up 3 points at 11,535 while the broader Standard & Poor’s 500 futures fell just over a point to 1,254.50.

How U.S. stocks actually perform may well hinge on weekly jobless claims figures as investors start thinking about next week’s key nonfarm payrolls data for December — the payrolls figures often set the stock market tone for a week or two after their release and the hope is that the recent improvement in the weekly release will provide further evidence that the U.S. economy is picking up steam.

There will also be interest in figures about the sale of previously owned U.S. homes in November — the expectations is that sales rose 0.8 percent from the previous month following a record 10 percent in October.

Anything weak, especially after soft new home sales figures earlier this week, may temper the recent optimism in the markets about the pace of the U.S. economic recovery. A rebounding housing market is one of the key ingredients behind the recent uptick in forecasts for the U.S. economic recovery.

“Any further signs of deterioration in the property market would be a worrying development,” said Gareth Berry, an analyst at UBS.

Stocks have been buoyant in the last few months as expectations of another slide into recession around the world have dissipated. Most of the world’s major indexes are poised to post solid gains for 2010, and many are actually trading at their highest levels since Lehman Brothers collapsed in September 2008, which proved to be the catalyst to a banking crisis and the ensuing global recession.

In Asia earlier, Japanese stocks took a hammering, partly on year-end factors but also on concerns over the yen’s ongoing strength, which is making it more difficult for the country’s exporters to compete in international markets — by late morning London time the dollar was 0.2 percent down at 81.51 yen, and approaching two-month lows.

Japan’s benchmark Nikkei 225 stock average fell 115.62 points, or 1.1 percent, to close at 10,228.92, meaning it has ended the year down around 3 percent, mainly on account of those yen-related concerns.

Chinese stocks continued to recover after sinking earlier this week in the wake of a surprise decision by the country’s monetary authorities to raise a key interest rate for the second time since October as they try to keep a lid on rising inflation.

The Shanghai Composite Index was up 8.05 points or 0.3 percent to end at 2,759.58 while Hong Kong’s Hang Seng index rose 30.04 points or 0.1 percent, to close at 22,999.34.

Oil prices are increasingly becoming a key worry in the markets as they have risen strongly of late in the wake of higher economic growth predictions — a number of analysts predict that a barrel of crude will soon spike above $100 a barrel.

Many analysts think that a big feature of 2011 will be what happens to oil prices and what the impact on inflation levels will be. If prices start to rise faster than anticipated, then central banks around the world may start considering raising interest rates from their current super-low levels sooner than they thought.

Benchmark crude for February delivery fell 4 cents to $91.08 a barrel on the New York Mercantile Exchange.

The euro was up 0.2 percent at $1.3243.

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AP Business Writer Kelvin Chan in Hong Kong contributed to this report.

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