LONDON (AP) — The new year rally in global markets faltered Monday as investors became more cautious ahead of comments from Federal Reserve chairman Ben Bernanke.
A number of stock indexes around the world have hit multi-year highs as a key measure of volatility, the so-called VIX index, has fallen to a five-year low. The main reasons have been relief that U.S. lawmakers agreed a last-minute package of measures to avoid the "fiscal cliff" of automatic spending cuts and tax increases and renewed hopes over the debt crisis in the 17 European Union countries that use the euro.
However, as the day progressed, the momentum dried up and most of the main indexes in Europe and the U.S. were either trading flat or slightly lower as investors awaited a raft of U.S. corporate earnings this week, particularly from banks such as Bank of America and Citigroup.
"Traders might be holding something in reserve as the banks are due to start reporting later in the week," said Alastair McCaig, market analyst at IG.
In Europe, Britain's FTSE 100 index fell 0.2 percent to close at 6,107.86. Germany's DAX rose 0.2 percent to 7,729.52 while the CAC-40 in France rose almost 0.1 percent to 3,708.25.
In the U.S., the Dow Jones industrial average was flat at 13,497.92 while the broader S&P 500 index fell 0.2 percent to 1,469.13.
Much of the focus later will center on Bernanke, who is due to speak at the University of Michigan after the markets close. Investors will be interested to hear if he sounds more confident about the U.S. economy and provides hints on future monetary policy.
"Given how much Bernanke's comments have a knack of creating volatility in the markets, this may be one to watch very closely," said Craig Erlam, market analyst at Alpari.
Any market response to Bernanke's comments will initially likely be felt in the currency markets. Ahead of his speech, the dollar was steady, with the euro up 0.1 percent at $1.3368.
The latest round of U.S. corporate earnings will also feature large in investors' thoughts this week.
"Expectations are extremely low around fourth quarter earnings, despite stock indices trading at multi-year highs, which suggests there's plenty of room for the rally to continue in the short term," said Erlam.
Markets have also been helped by expectations that figures on Friday will show China's economy gaining traction following a period of relative weakness. China reported last week a rise in exports and imports, a sign of higher demand both inside and outside the country. More signs of improvement are expected when China releases a slew of data on Friday, including factory output, investment and retail sales.
Hong Kong's Hang Seng rose 0.6 percent to 23,413.26. South Korea's Kospi added 0.3 percent to 2,002.77 and Australia's S&P/ASX 200 advanced 0.2 percent to 4,719.70. Japan's financial markets were closed for a public holiday.
Mainland Chinese stock markets were boosted when Guo Shuqing, chairman of the China's securities regulator, said at a conference in Hong Kong that there was room to raise by "at least" tenfold the quota of foreign institutions allowed to invest in China's domestic stock markets, which are largely off-limits to outsiders because of capital controls.
Mainland China's Shanghai Composite Index soared 3.1 percent to 2,311.74 while the Shenzhen Composite Index for China's second, smaller stock market jumped 3.6 percent to 918.23.
Oil prices lost their shine as the momentum in stock markets dried up. The benchmark New York contract was down 20 cents at $93.36 per barrel in electronic trading on the New York Mercantile Exchange.
Pamela Sampson in Bangkok contributed to this report.