European stocks close mostly higher before US drop

European markets close mostly higher before US selling pressure resumes despite Merck deal

LONDON (AP) -- European stock markets closed mostly higher Monday, but Wall Street turned lower as investors fretted about the length and depth of the U.S. recession, despite the news that drug maker Merck & Co. was buying Schering-Plough Corp. for around $41 billion.

In Europe, the FTSE 100 index of leading British shares closed up 11.67 points, or 0.3 percent, at 3,542.40, while Germany's DAX ended 25.62 points, or 0.7 percent, higher at 3,692.03. France's CAC-40 was 15.16 points, or 0.6 percent, lower at 2,519.29.
By late-afternoon London time, the Dow Jones industrial average was down 65.15 points, or 1 percent, at 6,561.79, with Merck down 10 percent following the announcement of the Schering-Plough deal. Merck will be paying a premium of 34 percent to buy Schering-Plough, based on Friday's closing share prices.

Meanwhile, the broader Standard & Poor's 500 index fell 4.5 points, or 0.7 percent, to 678.88.
Earlier Europe's main indexes had traded sharply lower after Japan's benchmark tumbled to a 26-year closing low amid ongoing concerns about the length and depth of the global economic downturn and renewed fears about the capital position of the world's leading banks.
Those concerns were stoked over the weekend by the World Bank's forecast that the global economy will shrink this year for the first time since World War II, and the British government's confirmation that it was taking a majority stake in Lloyds Banking Group PLC in exchange for insuring potentially more than 260 billion pounds ($367 billion dollars) of shaky assets.
The bank saw its shares tumble more than 10 percent at one stage before the afternoon recovery saw it end nearly 5 percent higher. Barclays PLC was the worst-performing British banking stock, closing 5 percent down on fears that it may have to give up a stake to the government in return for participating in the insurance plan.
"Investors continue to shy away from banking stocks as the specter of creeping nationalization makes them wary of just how much shareholder value they would see in the medium term from the sector," said David Jones, chief market strategist at IG Index.

With the capital position of much of the financial sector around the world still a key source of concern, and no sign of a turnaround in the global economic news, the backdrop for shares remains gloomy.
"With economies around the world still producing grim data on an almost daily basis and stock markets having to continually revise expectations downwards, this particular bear market appears to be still in full flow," said IG Index's Jones.
Investors also will be mindful of remarks from American billionaire Warren Buffett, who said during an appearance on CNBC that the world's largest economy had "fallen off a cliff" over the past six months.

Earlier in Asia, Japanese shares, already among Asia's worst performing this year, fell sharply on the news that the world's second-largest economy posted a record current-account deficit in January, its first in 13 years.
Japan's Nikkei 225 stock average fell 87.07 points, or 1.2 percent, to 7,086.03, and Hong Kong's Hang Seng tumbled 576.94, or 4.8 percent, to 11,344.58 on the coattails of heavyweight lender HSBC, Europe's largest bank and a big component of the Hang Seng.
Elsewhere in Asia, Shanghai's benchmark plummeted 3.4 percent, while stock measures in India, Singapore and Taiwan also fell. However, those in South Korea and Australia gained 1.6 percent and 0.3 percent respectively.
In the oil market, benchmark crude for April delivery rose $1.84 to $47.36 a barrel as investors anticipated another OPEC production cut. The move back towards $50 a barrel helped oil stocks around the world rally strongly on Monday, with Britain's BP PLC up nearly 6 percent and ExxonMobil Corp. in the U.S. 2 percent higher.

The dollar rose 0.5 percent to 98.85 yen, while the euro rose 0.1 percent to $1.2654.


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