European stocks fell on Tuesday as investors fretted about corporate profits, while the dollar held steady ahead of a speech by U.S. Federal Reserve Chairman Alan Greenspan on the U.S. economy and interest rates. Oil prices climbed towards $42 a barrel, fuelled by worries about disruptions to supply from the Middle East at a time of strong demand and lack of spare production capacity. Euro zone bond yields rose briefly after Germany's Zew Institute said its gauge of investor confidence in Europe's largest economy rose in July, but the main focus was still Greenspan, traders said. Some economists expect Greenspan to repeat his pledge of a "measured" approach to interest rate hikes in the United States given recent signs of slower economic growth later on Tuesday when he speaks to Congress. "Investors wait for pearls of wisdom from Greenspan," David Buik at spreadbetters Cantor Index said. "Growth, rates and employment will dominate the agenda." Others think his message will be that June was an economic soft spot and the main risk is inflation, which has been fuelled by record high oil prices. But that too could be interpreted to mean a gradual rise in U.S. interest rates, they said.
"(However), even the message of a measured pace could have a negative impact on bond prices," Jitzes Noorman, strategist at Rabobank said. "Markets are only discounting 82 basis points of tightening by end-2004 instead of 100 basis points." The Fed hiked interest rates for the first time in four years last month to 1.25 percent from 46-years lows of 1 percent. The interest rate-sensitive two-year Schatz yield hovered little changed around 2.559 percent and the benchmark 10-year Bund yield was steady around 4.201 percent. U.S. oil prices were were last trading down four cents at $41.60 a barrel and London Brent was down two cents at $37.88 a barrel.
STOCKS, DOLLAR
Overnight in New York, stock prices slipped on concerns about earnings growth, but stayed within recent ranges as caution prevailed ahead of Greenspan. Japan's Nikkei average <.N225> echoing that weak sentiment fell 1.5 percent to 11,258.37 points, the lowest close since June 4. The broader TOPIX index <.TOPX> was down 1.01 percent at 1,139.53 points. In Europe worries about oil prices and weak consumer spending in the region added to worries about profits. The FTSE Eurotop 300 index <.FTEU3> of pan-European blue chips was 0.66 percent lower at 959.99 points, while the narrower DJ Euro Stoxx 50 index <.STOXX50E> lost 0.57 percent to 2,682.53 points. Activity in currency markets froze as traders awaited Greenspan's speech. But the dollar managed to make some headway against the yen as Japanese equity losses weighed on the yen, while against the euro it hovered above four-month lows. The euro was last trading down 0.1 percent at $1.2425 and the dollar was up 0.1 percent at 108.34 yen .///