World markets subdued after US housing data

(AP) — European and U.S. stock markets took a breather Tuesday as some of the optimism that drove the previous session's hefty gains was dented by disappointing U.S. housing data.

In Europe, the FTSE 100 index of leading British shares closed up 22.16 points, or 0.4 percent, at 5,522.50 but Germany's DAX fell 16.44 points, or 0.3 percent, to 6,031.86. The CAC-40 in France ended a tiny 1.06 point lower at 4,012.91.

On Wall Street, the Dow Jones industrial average was down 36.51 points, or 0.3 percent, at 10,547.45 around midday New York time while the broader Standard & Poor's 500 index was barely higher at 1,133.16.

The muted performance comes a day after European and U.S. stocks enjoyed their best New Year start since 2003 after strong manufacturing data stoked hopes that the economic recovery this year may be stronger than anticipated.

However, housing figures from the National Association of Realtors reined in some of the early year cheer.

It reported that pending home sales in November slid by a bigger than anticipated 16 percent following nine consecutive monthly increases. The consensus in the markets was for a far more modest decline of 2 percent.

Paul Dales, U.S. economist at Capital Economics, said the sharp decline confirms that much of the recent strength in home sales was due to buyers bringing forward purchases to take advantage of a government tax credit.

As a result, he anticipates that existing home sales — closely monitored in the markets — will fall back to around 5.4 million units in December from November's 6.5 million. However, that would still be around 20 percent higher than the low point recorded at the start of 2009 when activity in the U.S. housing market was in freefall in the wake of the banking crisis and the onset of recession.

The key data release this week will be Friday's U.S. nonfarm payrolls data for December and many in the markets expect the first job creation in two years. The jobs data often set the stock market tone for a week or two.

Other key economic news this week include global services activity data on Wednesday as well as the publication of the minutes to the last rate-setting meeting of the U.S. Federal Reserve.

"The minutes from that meeting should give us some more idea about the growing tensions between the doves and the hawks," said Capital Economics' Dales.

The key driver to stock market performance, at least in the first part of the year, will likely be whether economic figures back up the optimism that is evident in company valuations following a nine month bull run.

Stock markets around the world rallied strongly since March's lows — the Dow and the S&P 500 for example surged more than 60 percent since then — as investors grew more optimistic about the global economic recovery after central banks and governments pushed through extraordinary policy measures to mitigate the deepest recession since World War II.

Earlier, Asian markets joined in the early year advance, with Hong Kong's Hang Seng up 456.30 points, or 2.1 percent, to 22,279.58 and Shanghai's main stock measure climbing 1.2 percent to 3,282.18 after falling the day before. Tokyo's Nikkei 225 stock average added 27.04 points, or 0.3 percent, to 10,681.83, its advance curtailed in the afternoon session on selling of exporters as the yen climbed again the dollar.

Elsewhere, Australia's market was up 1 percent, helped by stronger commodity prices while Singapore's index gained 0.8 percent. However, South Korea's Kospi edged down 0.3 percent to 1,690.62.

Oil prices extended their gains, with benchmark crude for February delivery up 6 cents at $81.57 a barrel. The contract jumped $2.15 overnight.

The dollar slid 1 percent over the day to 91.55 yen while the euro was steady around the $1.44 mark.

As in the stock markets, all eyes in the currency markets will be on Friday's U.S. jobs data and how the dollar reacts.

"It was the surprising strength of the November payrolls data that played a key role in causing the market to reevaluate its outlook in favor of dollar strength last month and Friday's release will be key in resolving some of the concerns regarding the likely strength of the U.S. economy this year," said Jane Foley, research director at Forex.com.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.