GLOBAL MARKETS: European Stocks Drop; Time To Take Profits

European stocks were marginally lower Wednesday, as investors consolidated profits, particularly in basic resources after three successive sessions of gains.

“There may be some nervousness as investors consider the strength of the rally since March, but we expect the market to be supported by further positive earnings surprises and estimate revisions,” said Simon Goodfellow, equity strategist at ING.

So although the market has edged lower Wednesday, “we stick with our positive view of European equity markets.”

While mining stocks were sold off the auto sector surged higher, helped by equity rating upgrades.

The market was also waiting for an update from General Motors (GM) regarding the future of Adam Opel GmbH, with the American auto giant weighing up several options.

At 0805 GMT, the pan-European Stoxx 600 declined 0.3% to 237.1. London’s FTSE 100 index was down 0.2% at 4937, Frankfurt’s DAX index fell 0.3% to 5462, and the CAC-40 index in Paris lost 0.3% at 3650.

The auto sector was the stand-out sector, with the Stoxx Europe automobiles index up 1.2%. BMW (BMW.XE) increased 4.8% after equity rating upgrades from Royal Bank of Scotland and Morgan Stanley and a higher price target from Credit Suisse. Daimler (DAI) was up 2.2% after RBS raised its price target. Also Renault (RNO.FR) gained 4.3% after a positive interview in Le Figaro with management suggesting that the worst is over.

On day two of General Motors’ board meeting, an Opel representative warned that if General Motors opts to retain the unit, it would incur costs of $3.8 billion over the first 12 months. Other options include selling control of Opel to either Magna International (MGA) or RHJ International (RHJI.BT) or liquidating it.

Elsewhere, M&A continued to be a feature for European stocks. French media-to-telecom conglomerate Vivendi slipped 0.9% after it launched a EUR2 billion offer for Brazilian telecoms operator GVT Holding. This comes just two months after Vivendi halted talks with Zain to acquire a majority stake in its African telecommunications activities.

On Tuesday, the announcement of the merger of Deutsche Telecom’s (DT) and France Telecom’s (FTE) U.K. mobile units was being seen as a positive sector catalyst for telecom services, said a note by Cheuvreux.

Earlier, Asian stock markets were largely lower, with the key Japanese index dragged lower by concerns about further yen strength. Commodity and energy-related stocks bucked the trend, however, on stronger oil and metals prices.

Japan’s Nikkei 225 closed down 0.8% and South Korea’s Kospi Composite was off 0.7%. Hong Kong’s Hang Seng Index was 0.9% lower, but the Shanghai Composite ended up 0.5%.

Investors in Tokyo moved to lock in profits on automakers, electronics firms and other exporters, wary of the yen’s appreciation against the dollar.

Overall, sentiment was not helped by gains on Wall Street. The Dow Jones Industrial Average closed up 0.6% at 9497.3, gaining for the third straight session. The DJIA is up 45% from its 2009 low on March 9.

Helping push the index higher was another round of buying in several types of commodities including gold, silver and oil.

The Nasdaq Composite tacked on 0.9% to 2037.8, hitting its highest close since Oct. 1. The Standard & Poor’s 500 rose 0.9% to 1025.4, including more than 1% gains for energy, materials, industrial and consumer discretionary companies.

The spike in commodities continued Wenesday. October Nymex crude oil futures contract was last up 14 cents at $71.24 per barrel, after surging $3.08 or 4.5% in New York Tuesday. Spot gold was last seen at $997.75 a troy ounce, just below the key $1000/oz level.

In the foreign exchanges, the majors were trading in very tight ranges as traders looked for clear direction after the dollar’s losses Tuesday.

But earlier, the euro rose to a near nine-month high against the dollar as soaring commodity prices spurred risk appetite. The euro rose to a high of $1.4518. The common currency also briefly hit a 12-day high of Y134.17 against the yen.

At 0830 GMT, the euro was trading at $1.4484, up from $1.4478 in late New York business Tuesday. The dollar was quoted at Y92.53, up from Y92.33.

European government bond markets were marginally higher Wednesday, receiving a boost from the weaker tone on the equity markets. At 0830 GMT, the December bund future was up 0.08 at 121.26. However, the market’s attention was on Germany’s EUR7 billion two-year Schatz auction.