2012.05.07 14:54:17 GLOBAL MARKETS: European Markets Stabilize After Early Losses

-- Stock indexes recover to trade mostly higher -- Euro steadies above the $1.30 level -- Euro-zone "peripheral" sovereign bond yields fall from their highs -- But Wall Street still expected to open weaker By Martin Essex and Andrea Tryphonides Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Europe's financial markets recovered some of their sharp earlier losses mid-session Monday after a strongly negative reaction earlier in the day to the weekend votes in France and Greece. Stock prices picked up from early falls, lifting many of the main European indexes into positive territory. The euro moved back above the $1.30 level and yields on "peripheral" euro-zone sovereign bonds also fell from their highs. Initially, investors reacted negatively to the outcome of the Greek and French polls. In a stinging rebuke to Greece's two mainstream parties and the austerity policies they backed, the conservative New Democracy party and the socialist Pasok party garnered less than a third of the vote combined. And in France voters elected as president Socialist Party candidate Francois Hollande, who has pledged to shift the economic hardship on to the rich and soften austerity measures. "Political chaos now prevails and the dollar is very strong as investors are fleeing Europe and are seeking any safer ports that might be available to them in this strong and strengthening political storm," said Dennis Gartman in his daily Gartman letter. Later, however, stability returned as traders decided the results were largely as had been predicted. By 1230 GMT, the CAC-40 in Paris was up 0.2%, the IBEX in Madrid was up 1.1% and the FTSE MIB in Milan was also up 1.1%, although the DAX in Frankfurt was still down 0.6%. The London market was closed for a public holiday. Bank shares, which had led the way down, also led the way back up again. In the currency markets, the euro fell below the $1.30 mark to its lowest level since January but then steadied to trade at $1.3031, still down from $1.3083 late Friday in New York. Meanwhile, euro-zone sovereign bond yields stabilized, leaving the 10-year French bond yield down four basis points at 2.79% although the thinly traded Greek 10-year issue still yielded 2.5 percentage points more, at 22.54%. The Italian 10-year yield was flat at 5.62% while the Spanish 10-year yield was up three basis points at 5.75%. Safe-haven German bund futures, which earlier reached a June contract high at 142.44, eased to 142.18, still up 0.13, as the flow of funds from Europe's periphery to its core reversed. Nonetheless, Wall Street stocks were still expected to open lower Monday, hit both by the weekend elections in France and Greece, and Friday's disappointing U.S. employment report. By 1230 GMT, the Dow Jones Industrial Average June futures contract was down 0.3% while the equivalent S&P 500 contract was down 0.4%. "Uncertainties about the future of the euro area remain high and investors remain skeptical on the long-term effects of the current austerity measures," said Newedge Strategy in a note to clients. "Politicians and central bankers talk about the importance of growth-boosting measures. However, markets so far seem to be pricing only the 'dark' side of the current austerity program." Among other asset classes, there were falls for oil prices, while the strength of the dollar hit the gold price. "As the new week of trading begins, oil prices are continuing the downward spiral they have been experiencing in recent days. Brent has fallen for a time to $111 per barrel this morning, its lowest price since the end of January," said analysts at Commerzbank. "At just over $95 per barrel, West Texas Intermediate has even dropped to a four-and-a-half-month low. Oil prices have thus shed approximately $10 since the middle of last week." However, by 1230 GMT, June Brent futures were trading at $113.05 a barrel, down just 13 cents, and June Nymex was at $97.98, down 51 cents. Gold was down $4.60 at $1,637.80 a troy ounce. Looking ahead, the U.S. economic calendar is almost empty, with just March consumer credit data due at 1900 GMT. -By Martin Essex and Andrea Tryphonides, Dow Jones Newswires; +44-20-7842-9464, martin.essex@dowjones.com and @MartinEssexDJN on Twitter (END) Dow Jones Newswires May 07, 2012 08:54 ET (12:54 GMT)