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European stocks fall as US economy contracts

European stock markets slid and the euro gained on Wednesday on news the US economy unexpectedly contracted in the fourth quarter last year and on bright eurozone confidence data.

In London, the FTSE 100 index of leading companies lost 0.25 percent to 6,323.11 points, while in Frankfurt, the DAX 30 fell 0.47 percent to 7,811.31 points, and in Paris the CAC 40 lost 0.54 percent to 3,765.52 points.

In Milan, the FTSE Mib index was down 3.36 percent at 17,290 points amid investor jitters over troubled bank Monte dei Paschi di Siena and disappointing results from oil services giant Saipem.

Madrid's IBEX 35 index slid 0.82 percent to 8,571.90 points on news that Spain's growth shrank 0.7 percent in the fourth quarter of 2012, as recession tightened its grip on the eurozone's fourth-largest economy.

At the same time however, the European single currency spiked to $1.3563, buoyed by upbeat confidence data, compared with $1.3493 late on Tuesday in New York. Earlier in the session the euro reached $1.3578, its highest level since November 2011.

In Europe, the European Commission's eurozone confidence index rose in January to 89.2 points -- reaching a level last seen in June 2012. That marked the third successive monthly increase and compared with the December level of 87.8.

At midday on Wall Street, the Dow Jones Industrial Average was down 0.01 percent, the S&P 500 lost 0.12 percent, and the tech-rich Nasdaq Composite was virtually unchanged.

According to the government's first estimate, the US economy contracted at a rate of 0.1 percent in the fourth quarter, mostly due to defense spending cutbacks.

But the economy expanded overall by a modest 2.2 percent for the full year in 2012, a gain from 1.8 percent in 2013, the Commerce Department said.

The report fed expectations that the Federal Reserve will keep in place its stimulus programs when it wraps up its two-day monetary policy meeting later Wednesday, its policy statement expected at 2:15 pm (1915 GMT).

"The Q4 GDP report is not strong, but it isn't as weak as it appears. Still, it is supportive of the Fed's easy-money policy that is expected to be reiterated again", Patrick O'Hare of said.

An upbeat January job growth report from payrolls firm ADP raised expectations for better employment numbers in Friday's US jobs report.

Asian equities had shot higher earlier on Wednesday, with Tokyo fuelled by continuing weakness in the yen.

European markets had powered higher earlier in the week on positive German data and as banks repaid early their emergency loans from the European Central Bank.

"Earnings have been mixed at best from Europe, adding to the downside pressure which sees the region's indices flipping between small gains and losses," noted Ishaq Siddiqi, an analyst at ETX Capital trading group.

In corporate news on Wednesday, E.ON shares slipped 0.79 percent at 13.22 euros, despite the energy group forecasting a sharp drop in annual profits as a result of the difficult industry environment and divestments.

Germany's biggest power supplier said in a statement that it was forecasting underlying net income of 2.2-2.6 billion euros ($2.9-3.5 billion) for 2013, down from 4.3 billion euros in 2012.

On the London Bullion Market, gold prices firmed to $1,677.50 an ounce from $1,663.50.