Stocks off highs after bigger take-up of ECB loans

February 29, 2012 - 7:15 AM

LONDON (AP) — European stock markets and the euro gave up some earlier gains Wednesday after the European Central Bank revealed that it lent slightly more than anticipated in its super-cheap three-year loan offering to banks.

The ECB said it made euro529.5 billion ($712.4 billion) in low-interest loans to banks in the second round of its long-term credit infusion, which has been widely credited with easing the eurozone debt crisis.

The uptake of the long-term refinancing operation, or LTRO, was modestly higher than the euro489 billion ($657.9 billion) handed out to 523 banks at a first offering on Dec. 21, and was slightly higher than market expectations. The offer of credit for three years was taken up by 800 banks, again more than anticipated.

After the details of the offering, the euro and stocks dropped slightly as investors worried that the higher take-up may be a sign of continued stress in Europe's banking system.

"While this will ease the crisis in the short term, an LTRO of this size is disturbing in what it reveals about the depth of banking problems in the EU," said Sony Kapoor, managing director of economic think-tank Re-Define.

The euro was trading 0.2 percent lower at $1.3440, having traded flat before the results were announced.

In stock markets, Europe's main indexes fell too but remained up on the day. Germany's DAX was up 0.5 percent at 6,294 while the CAC-40 in France was 0.4 percent higher at 3,468. The FTSE 100 index of leading British shares was 0.1 percent higher at 5,933.

Most of the world's leading indexes are back at levels they were trading at before last summer's massive sell-off. Stronger-than-anticipated U.S. consumer confidence figures on Tuesday also helped push the Dow to close at 13,005.12 on Tuesday. The last time the benchmark closed above 13,000 was in May 2008, four months before the fall of the Lehman Brothers investment bank and the worst of the financial crisis.

The ECB's first round of three-year loans last December is often cited as one of the reasons why markets been so buoyant this year as they eased concerns of an imminent credit crunch in Europe.

Banks used some of the money from the first round of loans to buy government bonds. That lowered borrowing costs for hard-pressed governments struggling to maintain large amounts of debt, and eased fears of a market meltdown from Europe's troubles with too much government debt.

"The ECB will certainly be hoping that the even stronger take up of its second unlimited three-year refinancing operation will help to ease credit conditions significantly," said Howard Archer, chief European economist at IHS Global Insight.

Wall Street was poised to open slightly higher later — both Dow futures and the broader S&P 500 futures were 0.1 percent higher.

Earlier in Asia, Japan's Nikkei 225 index edged up slightly to close at 9,723.24 after the government released a report that showed factory production rising for a second straight month in January.

Hong Kong's Hang Seng gained 0.5 percent to 21,680.08 and South Korea's Kospi gained 1.3 percent to 2,030.25.

But on mainland China, the benchmark Shanghai Composite Index lost 1 percent to 2,428.49 while the Shenzhen Composite Index fell 1.3 percent to 956.99.

Mainland Chinese shares fell after Shanghai announced that — contrary to recent reports — it would not ease restrictions on

Investors are also anticipating the Federal Reserve's so-called Beige Book report on economic activity, due later Wednesday. The report is expected to reflect a slowly improving U.S. economy.

Oil prices ticked higher alongside equities — benchmark oil for April delivery was up 49 cents at $107.40 a barrel in electronic trading on the New York Mercantile Exchange.

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Pamela Sampson in Bangkok contributed to this report.