Global liquidity could dry up as investors pull out of riskier assets.
FRANKFURT, Germany -- A surprise rebound in U.S. economic growth during the second quarter stabilized European stock markets on Friday but could not push them higher as they struggled to recover from a Wall Street-inspired malaise.
While many Asian markets ended sharply lower after Wall Street's stunning drop on Thursday, Europe's major indices wavered into positive territory during the day with help from renewed consumer confidence in Germany and news that the U.S. gross domestic product rose by 3.4 percent in the April-June period, its strongest showing in more than a year.
But European indexes could not hold their gains. Germany's benchmark DAX-30 Index fell 0.8 percent to 7,451.68, a contrast to its record highs of a few days ago. In Paris, the CAC-40 dropped 0.6 percent to 5,643.96 while in London, the FTSE 100 lost 0.6 percent to 6,215.20.
"The recovery process began for equity investors on Friday, helped largely by an oversized GDP report, but equity traders have recently been binge-drinking and they haven't seen the economy through the same perspective as the rest of us," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC.
"Rumors of mergers and leveraged buyouts have kept glasses overflowing and spirits effervescent. Having suffered a nasty hangover on Thursday, investors took an early morning tonic reading from the growth report and decided they could make the weekend before crashing once again."
Wall Street extended its steep decline Friday as investors already anxious after the second-biggest market drop this year digested a stronger-than-expected read on the economy. The Dow Jones industrials fell more than 200 points and broader stock indicators also fell.
The concern over market volatility caused drinks producer Cadbury Schweppes PLC to extend its deadline for bids on its U.S. beverage unit, which includes key brands like 7-Up, Dr Pepper and Snapple. Cadbury shares rose 2.4 percent in London.
In Asia, Japanese stocks fell to nearly three-month lows, Philippine stocks marked their steepest decline in 10 years and South Korea's benchmark index -- which had hit a record Wednesday -- sank 4.1 percent, its biggest slide in more than three years.
Chinese stocks, however, ended the day flat. The benchmark Shanghai Composite Index slipped just 0.03 percent after hitting an all-time high on Thursday.
Investors also worried that higher corporate borrowing costs will curb the rapid pace of takeovers that had driven stocks higher this year. Global liquidity could dry up as investors pull out of riskier assets, including Asian emerging markets, analysts said.
"If big foreign funds have selling orders, they tend to go by region. If they sell Asia funds, they do it to re-evaluate portfolios or cover losses in the U.S.," said Rommel Macapagal, chairman of Westlink Global Equities, in Manila.
"But for local investors, it's a sentiment. When big drops occur, they tend to get jittery because of expectation of foreign funds selling. They tend to get out," he said.
In Tokyo, the Nikkei 225 index sank 2.4 percent to 17,283.81. Concerns about the yen's strength, which hurts exporters, and uncertainty over weekend parliamentary elections also weighed on the market.
The sell-offs in Asia came after stunning rallies in the region -- markets in South Korea, China and India hit records just this week -- and some investors viewed Wall Street's drop as a good opportunity to sell and lock in their profits.
Hong Kong's Hang Seng index fell 2.8 percent, while stocks in the Philippines tumbled 3.9 percent, their biggest drop since 1997. Taiwan's benchmark index dropped 4.2 percent. Australia's benchmark index slid 2.8 percent, its biggest decline since 2001. In India, the 30-share Sensex of the Bombay Stock Exchange fell 3.4 percent to 15,235.