Ifo hits euro, stocks; oil below $125 a barrel

Thu Jul 24, 2008 5:03am EDT

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - The price of oil steadied below $125 a barrel on Thursday and positive news on the corporate front lifted some equities, but European stocks suffered after a poor German business climate report.

The euro fell against the dollar and euro zone government bond prices jumped to break a six-session losing streak after the Munich-based Ifo economic research institute said German corporate sentiment declined by more than expected in July to its lowest level in nearly three years.

U.S. light crude for September delivery was down 28 cents at $124.14 a barrel after hitting a seven-week low of $123.89.

Prices have now fallen more than $23 a barrel from their all-time peak above $147 on July 11, easing one of the major worries facing investors and allowing for some risk appetite to return to equity markets.

"We do not see any factors to push up (oil) prices at all at the moment," said Tetsu Emori, a fund manager at Astmax Co Ltd in Tokyo.

The Ifo report, however, hit European stocks, which had already been struggling because of their heavily energy-related sectors.

The pan-European FTSEurofirst 300 was down 0.8 percent.

Earlier, Japan's Nikkei average .N225 rose 2.2 percent to a four-week closing high, as Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) and other carmakers led gains by exporters on a softer yen versus the dollar and the drop in oil prices.

Morgan Stanley said in a note that it was scrapping its "cautious" stance on banks and diversified financials sector and moving to "neutral".

KINGFISHER, LSE RISE

Kingfisher (KGF.L: Quote, Profile, Research, Stock Buzz) surged more than 10 percent after Europe's biggest home improvements retailer reported a 0.2 percent rise in second-quarter like-for-like sales at its B&Q chain in the UK and improved gross margins in both its UK and French businesses. [ID:nL24902127]

However, British retail sales slumped in June at the sharpest monthly rate since the series began in 1986, more than wiping out May's record rise and bringing three-month growth to its slowest since late last year. [ID:nL4056396]

Within the retail sector, Marks & Spencer (MKS.L: Quote, Profile, Research, Stock Buzz) slipped 2.4 percent and Sainsbury (SBRY.L: Quote, Profile, Research, Stock Buzz) and Tesco (TSCO.L: Quote, Profile, Research, Stock Buzz) both dipped 1.1 percent.

U.S. home sales figures and weekly jobless claims later in the day will provide further clarity on the health of economies.

Index heavyweight Vodafone (VOD.L: Quote, Profile, Research, Stock Buzz) extended the previous session's recovery, rising 1.1 percent. The mobile phone group announced on Wednesday a surprise billion-pound share buyback programme after its stock fell a day earlier on a weaker-than-expected trading update.

London Stock Exchange (LSE.L: Quote, Profile, Research, Stock Buzz) rose 6.6 percent after Morgan Stanley upgraded the stock to "equal-weight" from "underweight".

That lifted the DJStoxx European banks index despite the overall falls.

Earlier, Japan's Nikkei average .N225 rose 2.2 percent to a four-week closing high, as Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) and other carmakers led gains by exporters on a softer yen versus the dollar and the drop in oil prices.

The benchmark added 290.38 points to end at 13,603.31. The broader Topix climbed 2.2 percent to 1,332.57.

OIL STEADY, DOLLAR RISE, BONDS JUMP

Oil dipped to seven week lows due to increasing signs that high prices and economic weakness are slowing demand.

U.S. light crude fell as low as $123.62 a barrel, the lowest since early June. It was trading at $124.83 later.

Crude has now fallen more than $23 a barrel from its record high peak above $147 on July 11.

"We do not see any factors to push up (oil) prices at all at the moment," said Tetsu Emori, a fund manager at Astmax Co Ltd in Tokyo.

The euro hit a two-week low against the dollar after the slew of soft euro zone data cooled expectations of higher interest rates.

The euro was down a slender 0.1 percent on the day at $1.5665. It earlier slipped as low as $1.5637 immediately after the Ifo report.

Two-year euro zone bond yields were 14 basis points lower at 4.453 percent, while 10-year bond yields were 7 basis points lower at 4.590 percent.