Markets steady despite growing ECB rate cut talk

MOSCOW (AP) -- European markets steadied Tuesday following a strong performance the previous session despite growing expectations of an interest rate reduction from the European Central Bank later this week.

The expectation that the ECB will cut its main interest rate from the already all-time low of 0.75 percent has grown after figures Tuesday showed eurozone unemployment up at another record high of 12.1 percent.

But while the rise in unemployment was not much of a surprise, the sharp fall in inflation was. Eurostat, the EU's statistics office, said inflation rose 1.2 percent in the year to April, way down from the 1.7 percent rate recorded in March and markedly below market expectations for a modest decline to 1.6 percent.

The preliminary April rate was the lowest since February 2010 and takes inflation even further below the ECB's target of keeping inflation "close to but below" 2 percent.

Given that expectations of a rate cut were largely factored in and following a solid session on Monday, stocks were solid, if unspectacular.

"I think the reason for this mild response is that a rate cut has now already been priced into the markets," said Craig Erlam, market analyst at Alpari.

Germany's DAX added 0.5 percent to 7,913 while France's CAC-40 was 0.3 percent lower at 3,856. Britain's FTSE 100 was down 0.25 percent to 6,441.

The euro, which has dropped in recent days as investors priced in a rate cut, was trading 0.4 percent higher at $1.3150.

Wall Street opened slightly lower after drug company Pfizer and other companies reported weak earnings.

The earnings reports offset the impact of upbeat economic indicators. The S&P/Case-Shiller home price index rose 9.3 percent in February, the most in almost seven years. Separately the New York-based Conference Board said its consumer confidence index rose to 68.1 points in April from 61.9 in March.

The Dow was down 0.1 percent at 14,800 while the broader S&P 500 index was flat at 1,593.

Stocks around the world have performed solidly over the past few weeks despite a run of mostly disappointing economic data. However, the upside for investors in stock markets is that the soft patch may mean the world's central banks persevere with their easy and cheap monetary policies for longer than thought.

"Risk appetite continues to be enlivened rather than encumbered by the slew of poor data this week, with investors choosing to rely on optimism that the Fed will leave its current stimulus in place and that the ECB will look to cut its key lending rate," said Brenda Kelly, senior market strategist at IG.

The U.S. Federal Reserve will later in the day begin its two-day policy meeting.

As the week progresses, investors will be positioning themselves for perhaps the most important data release of the month. On Friday, U.S. nonfarm payrolls data for April will be published, a key gauge of employment in the world's largest economy.

Earlier, Asian stocks closed higher. Hong Kong's Hang Seng rose 0.7 percent to 22,737.01. South Korea's Kospi advanced 1.2 percent to 1,963.95. Australia's S&P/ASX 200 added 1.3 percent to 5,191.20.

However, Japanese data showing only modest improvement in manufacturing dampened sentiment there with Nikkei 225 index dropping 0.2 percent to close at 13,860.86.

Oil prices were steady, with the benchmark New York rate down 79 cents to $93.71 per barrel.

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AP Business Writer Pamela Sampson contributed to this report from Bangkok.