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Stocks cautious after plunge in Chinese market

May 5, 2015

LONDON (AP) — Stock markets were subdued on Tuesday after Chinese stocks plunged as the start of an IPO wave cooled investor sentiment.

KEEPING SCORE: In Europe, France’s CAC-40 edge up 0.1 percent to 5,084.85 and Germany’s DAX was flat at 11,626.79. Britain’s FTSE 100 rose 0.5 percent to 7,017.44. US stocks were poised to open slightly lower, with Dow futures down 0.1 percent and S&P 500 futures 0.2 percent lower.

EUROPE OUTLOOK: Investors reacted with caution to the new that the European Union had nudged up its growth forecast for the 19-country eurozone this year. The EU kept unchanged its forecast for 2016 and noted that the economy in Greece is predicted to take a dive this year. Greece is struggling to agree with creditors on a new plan to get bailout loans and the uncertainty is eroding confidence in its economy.

ASIA’S DAY: The Shanghai Composite Index in mainland China had its worst day in months, losing 4.1 percent to close at 4,298.71, in turn dragging down Hong Kong’s Hang Seng 1.3 percent to 27,755.54. Australia’s S&P/ASX 200 briefly surged after a rate cut announcement but ended practically unchanged at 5,826.50 on indications the central bank probably won’t cut rates further. Markets in Japan, South Korea and Thailand were shut for holidays.

CHINA SLUMP: Investor sentiment was hit by worries about further market cooling measures as well as fears that a fresh wave of initial public offerings would siphon away funds from existing shares. More than 20 companies are scheduled to go public on Chinese markets starting from Tuesday until the beginning of next week, raising hundreds of millions of dollars in the process.

DECISION DOWN UNDER: The Reserve Bank of Australia cut interest rates by a quarter percentage point at its board meeting, as many economists had expected. That brings the central bank’s policy interest rate to an all-time low of 2 percent, providing additional monetary support for stocks and other financial assets. Australia’s economy is struggling as growth slows in China, its major market for iron ore and other commodity exports.

ANALYST VIEW: Investor enthusiasm waned after the rate cut because language in the central bank’s statement was a bit more upbeat than expected, signaling that this will probably be the final dollop of stimulus, IG Markets strategist Stan Shamu wrote in a commentary. “In a nutshell, it gave no hint of further easing and sounded like it is done with this easing cycle,” he said.

ENERGY: Benchmark U.S. crude rose 57cents to $59.50 in electronic trading on the New York Mercantile Exchange. The contract fell 22 cents to close at $58.93 a barrel on Monday.

CURRENCIES: The dollar strengthened to 120.37 yen from 120.11 yen on Monday, though trading volumes were light with trading in Tokyo closed. The euro fell to $1.1140 from $1.1147.

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