French-German euro zone plan fails to inspire Wall St

French-German euro zone plan fails to inspire Wall St

ReutersBy Ashley Lau | Reuters – 3 hrs ago

NEW YORK (Reuters) - U.S. stocks fell on Tuesday after three days of gains when a meeting between the heads of France and Germany failed to quell fears about euro zone leaders' ability to contain the region's sovereign debt woes.

Efforts to stem the spreading European debt crisis have so far been ineffective, a major reason for the equity market's declines in recent weeks. Stocks were unable to rally on Tuesday despite positive U.S. earnings and Fitch Ratings' decision to keep the AAA credit rating for the United States.

German Chancellor Angela Merkel and French President Nicolas Sarkozy detailed plans for closer euro zone integration but they did not include boosting the size of the euro zone's rescue fund or sales of euro bonds.

"The market wanted to see at least some forward movement, something concrete coming out of the meeting that would've been supportive to what's been dragging the market lower," said Marc Pado, U.S. market strategist at Cantor Fitzgerald in San Francisco.

Shares of financials, seen as vulnerable to a European fiscal crisis, added to their decline and were the worst-performing sector in the S&P 500. The S&P financial index was down 1.9 percent.

Merkel and Sarkozy said they would propose a tax on financial transactions, which hurt shares of exchange operators. Shares of NYSE Euronext fell 8.4 percent to $26.54, making it the worst performer in the S&P 500.

Shares of retailers Wal-Mart Stores Inc and Home Depot Inc both rose after the industry bellwethers exceeded analysts' expectations for quarterly numbers.

Dell Inc's shares dropped 4.9 percent in after-hours trading after the company reported revenue slightly below analysts' expectations and said sales in the present quarter would be flat.

Euro zone worries have weighed heavily on markets, most recently with last week's concerns about the solvency of French banks and the continued uncertainty over the European Central Bank's ability to control sovereign bond yields.

The Dow Jones industrial average dropped 76.97 points, or 0.67 percent, at 11,405.93, while the Standard & Poor's 500 Index declined 11.73 points, or 0.97 percent, at 1,192.76, and the Nasdaq Composite Index fell 31.75 points, or 1.24 percent, at 2,523.45.

Worries about the euro-zone troubles and a weakening U.S. economy have pushed U.S. stocks into correction territory after the S&P 500's closing high on April 29.

Data showed Germany's gross domestic product expanded just 0.1 percent from April to June versus the previous quarter, missing forecasts and knocking regional growth figures below expectations.

"We have France out with no growth yesterday and Germany out with no growth today. It broadens a picture that global economies have experienced a simultaneous pause," said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.

Fitch confirmed the United States' top-notch credit rating less than two weeks after Standard & Poor's downgraded the United States to AA-plus.

Wal-Mart shares advanced 3.9 percent to $51.92 after the company said U.S. same-store sales turned positive in July. Home Depot shares gained 5.2 percent to $33.12 after the company raised its fiscal-year profit forecast for the second time in three months.

About 8.2 billion shares were traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, roughly in line with last year's daily average of 8.47 billion. About three stocks fell for every advancer on the New York Stock Exchange and about four shares declined for every advancing stock on the Nasdaq.

(Reporting by Ashley Lau; Editing by Kenneth Barry)


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Sarkozy and Merkel push euro integration, no joint bonds

ReutersBy Nick Vinocur and Leigh Thomas | Reuters – 1 hr 21 mins ago

PARIS (Reuters) - France and Germany unveiled far-reaching plans on Tuesday for closer euro zone integration and said joint euro bonds may be a longer-term option, leaving the currency area vulnerable to more attacks from traders.

Under heavy pressure to restore confidence in the euro zone following a dramatic market slump, President Nicolas Sarkozy and Chancellor Angela Merkel stopped short of increasing the bloc's rescue fund but vowed to stand side-by-side in defending the euro and laid the groundwork for future fiscal union.

Their message was that the focus should be on further economic integration rather than signing bailout checks, and suggested that straying from euro zone rules and fiscal targets would no longer be tolerated.

"We have exactly the same position on euro bonds," Sarkozy told a joint news conference with Merkel after their talks.

"Euro bonds can be imagined one day, but at the end of the European integration process, not at the beginning."

But many experts said the measures would fail to assuage markets, which believe a common bond is the only way to ensure affordable financing for euro zone members struggling with debt.

U.S. stocks dropped more than 1 percent and the euro slid as the proposals failed to ease worries about a debt crisis markets fear is spreading to the euro zone's core. Traders had hoped for signals that the issuance of common euro bonds, or an increase of the EFSF, were live options.

"This meeting is all stick -- fiscal rule enforcement -- and no carrot -- a pooling of fiscal resources via a common bond," Rabobank strategist Richard McGuire said.

The statement by the two leaders reflects deep hostility, among voters in northern Europe tired of bailing out the south at a time of austerity at home. That is particularly true in Germany, where growth slowed to almost zero in the second quarter.

"Anyone expecting this meeting to launch euro bonds was not paying attention to the state of political opinion or indeed to the kind of compromises needed for that to happen," said Julian Callow, senior economist at Barclays Capital in London.

"ECONOMIC GOVERNANCE"

In a further rap to financial market players, whose panic-selling this month wiped some $4 trillion off global stocks and sparked a temporary ban in Europe on short-selling, Sarkozy and Merkel also proposed taxing financial transactions.

In plans to be sent on Wednesday to European Council President Herman Van Rompuy, the two leaders want a president to be elected to represent the euro zone and twice-yearly meetings of the leaders of the embattled 17-nation bloc.

In one of the most far-reaching ideas, Sarkozy said the French and German finance ministers had been asked to prepare proposals aimed at having a common corporate tax base and tax rate in France and Germany from 2013. He said the two countries would keep a closer track of each others' economic outlooks.

Analysts queried the feasibility of a financial transaction tax, which was an unexpected proposal, given opposition from some European countries and the European Central Bank.

Callow said that while markets needed to see "more flesh on the bones" of the proposals, it was significant that the two leaders had broken into the August holiday period to meet.

"They are pledging a commitment to economic governance which is a step forward and there is also a commitment to a debt brake, although it remains to be seen whether that will be significantly strong," he said.

"Each side is surrendering some sovereignty which in the end could pave the way to much closer political union and so prepare the ground for the issue of euro bonds."

The full details of the written proposals to Van Rompuy will be made public on Wednesday, Sarkozy's office said.

EURO IS A SET OF RULES

Sarkozy and Merkel -- under pressure to convince markets the euro zone is sound or risk watching it unravel -- said their first proposal was for "a real economic government" for the euro zone, with a president elected for two-and-a-half years.

"Germany and France feel absolutely obliged to strengthen the euro as our common currency and further develop it. And it is entirely clear that for this to happen, we need a stronger interplay of financial and economic policy in the euro zone," said Merkel, who went on to a working dinner with Sarkozy.

Sarkozy said that if adopted, their proposal that euro zone governments should enshrine deficit-limiting rules into their constitutions would be obligatory, not optional.

"The euro has allowed us a lot of economic progress but the euro is not just a right, it's a set of rules, a duty, a discipline," he said. "Consequently if the rule is to be adopted by the 17, it will not be an optional rule but obligatory."

While it was unclear how governments could be forced to adopt politically difficult constitutional changes, Sarkozy's tone suggested there would be no more tolerance for straying from rules and even raised the specter of a two-speed union.

"TOO LITTLE TOO LATE?"

Officials in Paris and Berlin played down expectations ahead of Tuesday's meeting, saying euro bonds would not be on the agenda, but markets were still disappointed.

"Rather than the additional check-writing by core European governments that certain markets were looking for, including a new euro bond, they are getting a fiscal discipline golden rule, stronger economic governance, and a new financial transactions tax," said Mohamed el-Erian, co-chief investment officer at Pacific Investment Management Co in California.

The refusal to contemplate a euro bond at this stage is frustrating investors, who have seen Europe's response to the dragging crisis as too little too late. They see the common bond as the bloc's best chance of getting ahead of the curve.

Some analysts fear the European project could lose its way if domestic political pressures curb the ambitions of the leaders of France and Germany, the bloc's main political and economic powerhouse.

Merkel's own conservatives are strongly opposed to a second bailout of Greece according to a recent poll. Sarkozy, already facing a tough re-election battle next year, is having to push through austerity measures to convince markets France can retain its triple-A rating.

Sarkozy and Merkel had already planned to meet this week to discuss their proposals on euro zone governance, but the stakes were raised when French assets hit in last week's market rout.

Investors dumped shares in French banks, which are exposed to Italian debt, as rumors circulated -- denied by rating agencies -- that France's AAA-rating could be at risk.

That sell-off was evidence markets were not convinced by a July 21 deal to give new powers to the euro zone's EFSF rescue fund and for proposals to be made on closer economic governance.

Some still saw Tuesday's ideas boosting the euro, however.

"Sarkozy talks about common governance for the euro zone, which I think is one step closer toward a fiscal union. That's positive for the euro overall," said currency strategist Richard Franulovich at Westpac in New York.

(Reporting by Nick Vinocur, Leigh Thomas, Daniel Flynn and Brian Love in Paris and Andreas Rinke and Stephen Brown in Berlin; Writing by Catherine Bremer and Jon Boyle)

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