(Recasts with latest moves, Wall Street outlook)
By Natsuko Waki
LONDON, April 23 (Reuters) - European stocks slipped and
Wall Street was set for a weaker open on Wednesday as fresh
concerns about the health of the banking sector weighed, while
oil prices and the euro stepped back from recent record peaks.
The chief executive of German bank HVB <HVMG.DE>, a unit of
Italy's UniCredit <CRDI.MI>, said the bank will have significant
writedowns in the first quarter given financial market turmoil.
Ambac Financial Group <ABK.N>, a bond insurer that struggled
to raise capital earlier this year, posted a
bigger-than-expected quarterly core loss per share due to its
exposure to credit derivatives.
Investors, since the start of the month, have bought into
stocks as first-quarter earnings results have so far shown firms
are escaping the worst case scenario of plunging profits due to
the credit crisis.
However, the financial sector -- the epicentre of the crisis
-- is undoubtedly getting hit and an expected slowdown in global
growth could weigh on corporate profitability going forward.
"The key issue over the next week is whether analysts reset
expectations. As U.S. and UK GDP weakens, investors have still
not factored in a slowdown, and they may start doing this," said
Justin Urquhart Stewart, investment director at 7 Investment
Management.
The FTSEurofirst 300 index <> were down 0.7 percent
while MSCI main world equity index <.MIWD00000PUS> erased gains
to stand slightly down on the day. Banking stocks <.SX7P> fell
more than 2 percent, one of the worst performers in Europe.
U.S. stock futures were down 0.4 percent <SPc1>, indicating
a weaker open on Wall Street later. Key U.S. earnings results
due later include Boeing <BA.N> and Apple <AAPL.O>.
In the London interbank money market, the cost of borrowing
three-month dollars <LIBOR> remained at a six-week peak of
2.92000 percent, indicating persistent stress in money markets.
The euro was down 0.2 percent at $1.5964 <EUR=> after rising
to record highs above $1.60 on Tuesday.
Emerging sovereign debt spreads <11EMJ> tightened 1 basis
point while emerging stocks <.MSCIEF> rose 0.3 percent.
The June Bund future <FGBLM8> rose 20 ticks, gaining support
from steady U.S. Treasuries in Asia.
INFLATIONARY THREAT
U.S. light crude <CLc1> stood at $117.54 a barrel, down 0.4
percent on the day, after setting a record peak of $119.90 on
Tuesday.
Gold <XAU=> ticked lower to $918.30 an ounce, while Shanghai
copper futures rose and London tin futures hit a record high.
U.S. rice futures climbed more than 2 percent to a fresh
all-time peak <RRN8>.
Firmer energy and commodity prices are a double-edged sword
for stocks as they boost energy firms and emerging market assets
but also push up inflation which would erode corporate profits.
Rising prices are grabbing attention around the world. The
Australian dollar hit a 24-year peak against the U.S. currency
<AUD=> after data showed core inflation in the country
accelerated to its fastest pace in nearly 17 years in the first
quarter.
In the euro zone, recent comments by European Central Bank
officials focusing on inflation raised expectations that the
next move in interest rates would be a rise.
Some analysts say even a U.S.-led economic slowdown as a
result of the credit crisis might not be enough to tame
inflation risks.
"The U.S. slowdown has not been of dimensions sufficient to
ease global resource price pressures. With the bulk of the
demand side of the commodity shock being generated by developing
economies, the U.S. recession would have had to be of savage
proportions to tame the commodity inflation trend," noted Tim
Bond, head of global asset allocation at Barclays Capital.
"Inflation risks will quickly, perhaps even seamlessly, move
to replace credit risks as the major threat."
(Editing by Stephen Nisbet)
