The benchmark 225-issue Nikkei Stock Average rose 341.56 points, or 2.70 percent, from Tuesday to 12,999.84 after the morning trading. (AP Photo/Katsumi Kasahara)
LONDON (AP) -- World stock markets were mostly lower Wednesday ahead of an expected flat opening on Wall Street as investors remained cautious about whether the current pace of economic recovery, particularly in the U.S., justifies the rally seen in stocks since March.
In Europe, the FTSE 100 index of leading British shares was down 32.39 points, or 0.8 percent, at 4,296.18 while Germany's DAX fell 38.17 points, or 0.8 percent, to 4,852.55. The CAC-40 in France was 24.12 points, or 0.8 percent, lower at 3,189.83.
Wall Street was expected to open steady at the open. Dow futures were 17 points lower at 8,497 while the broader Standard & Poor's 500 futures were up 0.1 points at 907.90. On Tuesday, the Dow Jones industrial average fell 1.3 percent to 8,504.67, while the S&P dropped 1.3 percent to 911.97.
With some indexes up more than 50 percent since March on expectations of an economic turnaround this year, markets have begun to stumble amid worries stock prices have gotten too far ahead of economic fundamentals.
News that American industrial production fell by a bigger-than-expected 1.1 percent last month gave investors even more reason to hold back. It marked the seventh straight monthly drop and distracted traders from more upbeat figures on home construction, building permits and inflation.
The stock market rally since March's lows has been fueled by hopes that the U.S. economy in particular will recover from recession sooner than previously anticipated. As equities usually start rising 6 to 9 months before actual recovery emerges in the official data, this suggests investors believed the massive sell-off in markets during the most acute phase of the financial crisis was overdone. Some of the world's major equity indexes are now in positive territory for 2009.
That optimism has dissipated in recent days, however. Rising interest rates on U.S. government bonds and higher oil prices have combined to worry investors that any recovery around the world could be choked off at birth.
"Further falls in stock markets is suggestive of more risk being taken off the table today as the market worries about the strength of the 'green shoots' of recovery," said Jane Foley, research director at Forex.com.
Investors, it seems, are awaiting signs that the rally since March wasn't just misplaced euphoria. They now want to see clear evidence that the world economy and company earnings are recovering so that current stock valuations make sense. In March, many investors, awash with cash after bailing out from a sliding market, saw valuations around the world as particularly cheap.
Neil Mackinnon, chief economist at ECU Group, noted that the S&P 500 in the U.S. is "not cheap" at the moment at 16 times earnings and that the 925 level "is starting to falter."
Shanghai's stock measure recovered the session's losses to close higher by 1.2 percent, as investors found encouragement in comments from President Hu Jintao. Hu said Tuesday that Beijing's stimulus is showing results and China is determined to take the lead in emerging from the global economic crisis.
Investors were wary after the Chinese government last week reported conflicting data showing exports falling but consumer spending and investment rising.
"Investors have opposite interpretations on the data, but the president's speech made it clear to those fence-sitters and it's a boost to the market," said Tang Yonggang, an analyst for Hongyuan Securities in Beijing.
Oil prices were slightly softer, with benchmark crude for July delivery down 26 cents to $70.21. On Tuesday, the contract fell 15 cents.
In currencies, the dollar was up 0.3 percent at 96.42 yen while the euro rose 0.3 percent to $1.3847.