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World markets hesitant ahead of G7 finance meeting

Pamela Sampson, AP Business Writer

BANGKOK (AP) -- World stock markets faltered Tuesday ahead of an emergency conference call of finance ministers and central bank presidents from the world's seven industrialized powers to discuss Europe's worsening debt crisis.

The private discussion involves officials from the United States, Japan, Germany, France, Britain, Italy and Canada. U.S. officials have said Washington expects more action to strengthen the European banking system in the next two weeks before a meeting of the Group of 20 major economies in Los Cabos, Mexico, later this month.

In early European trading, Germany's DAX lost 0.9 percent to 5,925.36 while France's CAC-40 rose 0.2 percent to 2,961.19. Markets in Britain were closed for a public holiday.

Wall Street appeared headed for a slight pullback. Dow Jones industrial futures fell 0.2 percent to 12,043 and S&P 500 futures lost 0.3 percent to 1,269.70.

Earlier in Asia, stock markets rose amid short-covering and a selective step by Chinese authorities to boost consumption.

Japan's Nikkei 225 index rose 1 percent to 8,382 after suffering sharp losses the day before. Hong Kong's Hang Seng added 0.4 percent to 18,259.03 and South Korea's Kospi gained 1.1 percent to 1,801.85.

Benchmarks in Singapore, Taiwan, and Indonesia also rose. Australia's S&P/ASX 200 rose 1.3 percent to 4,033.80. Malaysia, New Zealand and Thailand fell.

Mainland Chinese shares were mixed. The benchmark Shanghai Composite Index gained 0.2 percent to 2,311.92. The Shenzhen Composite Index lost 0.2 percent to 937.39.

Andrew Sullivan, principal sales trader at Piper Jaffray, said short covering — the purchase of securities by a short seller to return those that they borrowed from a broker and sold — could explain some of the gains in Hong Kong. Short selling is profitable if the price continues to fall because the securities can be bought back at a lower price.

"A lot of people were shorting the market yesterday," he said. "If you sold yesterday when the market was trading at 18,100 and it opened at 18,300, you are losing money. So a lot of people will go into the market to cover their shorts."

One positive sign, according to analysts at Credit Agricole CIB in Hong Kong, was China's announcement of new subsidies for energy-saving white goods, which suggests "the government is rolling out more targeted measures to implement its stimulus program."

In individual stock trading, tech stocks across Asia clawed back gains. South Korea's LG Electronics Inc. jumped 4.7 percent. Taiwan Semiconductor Manufacturing Co., the world's largest contract chip-maker, rose 2.2 percent.

Honda Motor Co. rose 2.1 percent. Japan's No. 2 vehicle maker broke ground Monday for a new automobile plant in Indonesia, Kyodo News Agency said.

But Qantas Airways plummeted 18.7 percent, hitting historic lows after the Australian flagship carrier forecast a drop of up to 91 percent in full year earnings.

Global markets plunged Monday amid fears of a recession after a disappointing report on U.S. hiring and employment in May.

American employers added just 69,000 jobs in May, the fewest in a year, and the unemployment rate increased to 8.2 percent from 8.1 percent. Economists had forecast a gain of 158,000 jobs. The report is considered the most important economic indicator each month.

Adding to the evidence of a slowdown, new figures released Monday showed companies placed fewer orders to U.S. factories for the second straight month.

In Spain, investors are waiting for what the government intends to do to boost the finances of some of its ailing banks. The worry is that the government is already strapped for cash and might be overwhelmed by the costs of rescuing its own banks. It might have to tap European Union rescue funds, but it is reluctant to do so because such aid would come with conditions on the government's policies.

Meanwhile in Cyprus, the central bank governor said the country is struggling to find €1.8 billion to inject into its second-largest lender, Cyprus Popular Bank, by a June 30 deadline. That means it is increasingly likely to have to accept EU rescue funds. The chairman of Cyprus Popular Bank also suggested an EU loan now seemed more likely.

Benchmark oil for July delivery was down 25 cents to $83.73 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 75 cents to settle at $83.98 in New York on Monday.

In currencies, the euro fell to $1.2422 from $1.2494 late Monday in New York. The dollar fell to 78.20 yen from 78.34 yen.


AP researcher Fu Ting contributed from Shanghai.