Markets subdued in run-up to German court ruling

LONDON (AP) -- Financial markets were subdued Tuesday as investors awaited the results of a raft of events in Europe and the U.S. over the rest of the week.

In Europe, the main focus is a German court ruling Wednesday on a request to block the country's approval of the eurozone's permanent bailout fund, the European Stability Mechanism, or ESM. A last-minute appeal to delay the decision was dismissed Tuesday.

"If the ESM is not signed off, then it is every man for himself," said Gary Jenkins, managing director of Swordfish Research.

The prevailing view is that the court will allow a vote on the ESM to go ahead, but investors remain reluctant to do too much before the decision.

In Europe, Germany's DAX fell 0.2 percent to 7,202 while the CAC-40 in France dropped 0.4 percent to 3,493.

The FTSE 100 index of leading British shares was down 0.4 percent at 5,772, with luxury clothing brand Burberry topping the list of fallers. The company's share price was down by 18.5 percent after it warned that profits would be at the lower end of market expectations because of lackluster sales.

Investors will also be keeping a close watch on developments in Athens as the Greek government meets its international debt inspectors. Greece has to convince the so-called "troika" it is abiding by the terms of its bailout agreement so it can get its next tranche of rescue money to avoid a chaotic default on its debt.

The week ends with a meeting of euro finance ministers in Nicosia, Cyprus where Greece will likely to be the major topic of discussion.

Spain will also be in the spotlight this week as the government decides whether to tap a European Central Bank bond-buying program, that is largely-designed to keep a lid on the country's borrowing rates.

Comments by Spanish Prime Minister Mariano Rajoy on Monday raised more questions than they answered. Rajoy said there were "certain red lines" he won't cross if Spain asks the eurozone's bailout funds for help — a move that would trigger the ECB's bond buying under strict conditions.

Last Thursday's announcement by ECB president Mario Draghi that the central bank was willing to buy up an unlimited amount of short-term bonds of those countries that request help have been welcomed in financial markets.

"The ECB's bond-buying program is to be welcomed and Draghi to be lauded but the plan targets the symptoms of the euro area's malaise, not its cause," said Neil Mellor, an analyst at the Bank of New York Mellon. "The solution to the euro area's crisis will only appear on the horizon once it has been preceded by a brighter growth outlook."

The euro has been one of the big gainers over the past few weeks, and the currency is now trading near four-month highs against the dollar. It was up 0.3 percent Tuesday at $1.28.

But it is not all about the euro's strength — the dollar has been undermined by expectations that the Federal Reserve will enact another monetary stimulus. Whether it's ready to sign off on another stimulus will emerge on Thursday after the conclusion of the latest two-day policy meeting.

Investors remain unsure whether the Fed will act now, especially as it may not want to become a key point of debate in the upcoming U.S. presidential election.

Wall Street was poised for a solid open later, with both Dow futures and the broader S&P 500 futures up 0.2 percent.

Earlier in Asia, Japan's Nikkei 225 index sank 0.7 percent to close at 8,807.38 but Hong Kong's Hang Seng reversed earlier losses to close 0.2 percent higher at 19,857.88. Mainland Chinese stocks also fell, with the Shanghai Composite Index losing 0.7 percent to close at 2,120.55.

Oil markets were also subdued Tuesday, with the benchmark New York rate up 10 cents at $96.64 a barrel.