European Stocks Mixed as Political Uncertainties Spark Recovery Concerns

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By Prasanth Aby Thomas | February 5, 2013 7:10 PM EST

European stocks remained mixed in the opening minutes of trade as regional political uncertainties sparked concerns on the eurozone's recovery efforts.

The UK's FTSE 100 remained little changed while Germany's DAX and France's CAC-40 gained 0.1 percent each.

Italy's FTSE MIB plunged 0.6 percent, while Spain's IBEX slipped 0.2 percent.

The pan-European FTSEurofirst 300 index gained 0.1 percent to 1,152.00

The single currency dropped against the dollar, trading at about $1.34.

Spanish and Italian political concerns that have given rise to fresh eurozone uncertainties dominated investor sentiments. The recent corruption allegations which prompted Spain's opposition party to demand Prime Minister Mariano Rajoy's resignation have raised stability concerns in the country.

Despite Rajoy's efforts to deny the allegations and ease fears, traders remain cautious on the government's ability to carry out much-needed reforms and austerity measures.

In Italy, concerns centred on the outcome of the elections scheduled for 24 and 25 February. Opinion polls had earlier shown that Silvio Berlusconi's party was edging closer to become the front-runner, sparking further instability worries.  

Most Asian markets had ended mixed earlier as the European political troubles brought in global economic recovery concerns and prompted investors to book profits from the recent rallies.

Japan's Nikkei tumbled 1.90 percent to 11046.92, while South Korean benchmark KOSPI was down 0.77 percent to 1938.18. Australia's S&P/ASX 200 dropped 0.51 percent to 4882.70.

Hong Kong's Hang Seng plunged 1.91 percent to 23233.75 towards close. Bucking the regional trend, China's Shanghai Composite Index gained 0.21 percent to 2433.13.

"There was a danger that traders were beginning to forget about the three-year long eurozone crisis all too soon in the belief the worst was over. This had lifted optimism around the globe," said Jason Hughes, head of premium client management at IG Markets in Singapore.

"But sadly Europe is caught up in not just a financial mess but a political one also, as governments attempt to bring in much-needed austerity measures despite strong voter unrest".

Service sector Purchasing Managers Index data (PMI) from the UK and eurozone are set for release during the day. Analysts expect the British service sector to have rebounded into expansionary territory in the January after the surprise contraction in December. US ISM non-manufacturing figures are also expected later in the day.

Eurozone retail sales data are scheduled for release during the day as well.

Chinese recovery optimism was boosted further after a private survey showed that the country's service sector rallied to its highest level in four months in January. HSBC's non-manufacturing Purchasing Managers Index rose to 54 in the month, from the previous 51.7 mark. The service sector is becoming increasingly important in the world's fastest-growing economy, and one of the survey's sub-indices showed that firms remain positive on the outlook.

In Japan, the yen's weakness against its peers remained in focus, but corporate earnings speculations and profit-booking steps pulled the benchmark index down.

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