Stocks mostly fall on Microsoft, Amazon earnings as world rally loses steam

Stock rally pauses on Microsoft, Amazon earns

LONDON — European and U.S. stock markets mostly fell Friday as downbeat U.S. earnings news from Microsoft Corp. and Amazon Inc. and a survey indicating a drop in U.S. consumer confidence prompted caution among investors after a two-week rally that has sent many indexes around the world to 2009 highs.

In Europe, Germany’s DAX index fell 17.92 points, or 0.3 percent, at 5,229.36 while France’s CAC-40 was down 7.27 points, or 0.2 percent, at 3,366.45.

The FTSE 100 index of leading British shares bucked the trend to end up higher for the tenth day running, one short of its previous 11-day best in December 2003. It ended 16.81 points, or 0.4 percent, higher at 4,576.61.

And in the U.S., the recent run of big gains appeared to have run its course by midday New York time. The Dow Jones industrial average was down 24.04 points, or 0.3 percent, at 9,041.85, while the broader Standard & Poor’s 500 index fell 5.5 points, or 0.6 percent, to 970.79.

Analysts said it was unsurprising the markets were taking a breather that could persist for some time after recent big gains in the wake of better than expected U.S. earnings pushed some of the world’s leading indexes to 2009 highs.

“When trading resumes on Monday there will be a strong temptation to book profits if there is a sense that this rally has finally run out of steam and the market looks set to turn on its heels,” said Tim Hughes, head of sales trading at IG Index.

Disappointing earnings from Microsoft and Amazon after Thursday’s close were the catalyst to bringing the rally to an end. Microsoft reported a 29-percent drop in second-quarter net profit and a 17-percent slide in revenue amid continuing weakness for personal computers around the world. Meanwhile, retailer Amazon reported a 10-percent fall in net profit for the second quarter, partly related to a $51 million payment to settle a dispute with former partner Toys R Us.

Microsoft shares were down more than 9 percent, making it the biggest faller on the Dow, while Amazon slid more than 8 percent — one of the biggest fallers on the S&P.

A survey showing U.S. consumer confidence falling in July provided further impetus for investors to book profits. The University of Michigan said its main consumer sentiment index declined to 66 in June from 70.8 the previous month.

“It appears that following a good run on equity markets, this and other likely worsening sentiment figures over the next few weeks could be seen as a reality check for investors,” said Howard Wheeldon, senior strategist at BGC Partners.

While most of the focus this week has centered on U.S. earnings, the European reporting season is slowly kicking into gear, too, providing investors with crucial insights about whether the recession is easing as much as it apparently is in the U.S. Among others, steel company Arcelor Mittal, Deutsche Bank AG, carmaker Daimler AG, chemical company BASF SA and France Telecom SA will report their earnings next week and investors will be interested to see if the recent improvement in forward-looking surveys is being felt in the real world.

Jeremy Batstone-Carr, director of private client research at Charles Stanley stockbrokers, said the pan-European earnings season is likely to support the near-term improvement in risk appetite.

“The improvement in macro economic data releases through Q2 is likely to result in an earnings season which exceeds expectations in terms of positive surprises relative to negative surprises,” he said.

The wider economic picture emerging in Europe on Friday was mixed though.

While the British economy contracted by a bigger than expected 0.8 percent in the second quarter of the year from the previous three month period, the respected Ifo Institute indicated that business optimism in Germany, Europe’s biggest economy, improved for the fourth month running. Its main business climate index rose to a nine-month high of 87.3 points in July from 85.9 points in June. The rise was bigger than anticipated, with economists projecting an increase to 86.5.

Earlier in Asia, Japan’s Nikkei 225 stock average rose 151.61 points, or 1.6 percent, to 9,944.55 and Hong Kong’s Hang Seng advanced 165.09, or 0.8 percent, at 19,982.79.

South Korea’s Kospi was 0.4 percent higher after figures showed the economy grew 2.3 percent in the second quarter as increased government spending and record low interest rates helped to insulate it from the global recession. Singapore and China have also released stronger growth figures in recent weeks.

Elsewhere, Australia’s market gained 0.6 percent, Singapore was 1.7 percent higher while Taiwan’s benchmark edged lower by 0.1 percent.

China’s Shanghai market gained 1.3 percent, shrugging off fears that a construction company’s massive share sale could weigh on stock prices. China State Construction Engineering Corp., the company that built the “Water Cube” swimming center for the Beijing Olympics, said Friday that it raised $7.3 billion in the world’s biggest initial public offering this year.

Oil prices hovered above $67 a barrel, adding to big gains made overnight. Benchmark crude for September delivery was up 23 cents to $67.39 a barrel. On Thursday, the contract added $1.76 to settle at $67.16.

The dollar fell 0.3 percent to 94.78 yen while the euro rose 0.4 percent to $1.4206.

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AP Business Writer Stephen Wright in Bangkok contributed to this report.