European stocks fall despite rallies in Asia

World stock markets were mixed Tuesday as investors in Europe booked profits from recent rallies, while Asian indexes were boosted by banking stocks as fears about the world's hard-hit financial system eased.

By noon in mainland Europe, Britain's FTSE 100 had slipped 0.6 percent to 3,840.69, Germany's DAX dropped 0.6 percent to 4,020.07, and France's CAC 40 slumped 0.7 percent to 2,771.24.

Wall Street was set to open higher after ending a four-day streak of gains on Monday. Dow Jones industrial average futures were up 0.4 percent at 7,207. Standard & Poor's 500 index futures rose 0.5 percent to 757.50, while Nasdaq 100 index futures added 0.6 percent to 1,159.

"The one key thing which is dominating the markets today is profit-taking, which is going on in all of the European markets and in the U.S. yesterday," said James Hughes, market analyst at CMC Markets, adding that sentiment still seemed positive.

"It doesn't seem to have been as heavy as some people would have expected," he said. "We saw 11 percent gains last week on the FTSE, but we're not getting such an aggressive sell-off. U.S. markets are looking to open up in positive territory. There is still that air of confidence around."

In Europe, the news flow was mixed, with Nokia announcing it will cut 1,700 jobs to cut costs and Germany's ZEW survey showing that Germany's business outlook improved in March.

Looking ahead, investors were awaiting key U.S. economic reports about inflation and the housing market, due later Tuesday.

A report from the Commerce Department is expected to show that new home construction and building permit applications fell to record lows in February - to an annual rate of 450,000 units last month from 466,000 units in January, according to economists surveyed by Thomson Reuters. The collapse of the housing market has been one of the key drivers of the ongoing recession.

Building permit applications, which are considered a sign of future activity, are expected to fall to an annual rate of 500,000 units from 531,000 units in January.

Earlier in Asia, markets extended their rally, with Tokyo's index up more than 3 percent. Investors were relieved after Britain's Barclays PLC announced Monday that it was performing well so far in 2009. In Hong Kong, Standard Chartered PLC, which focuses heavily on Asian and other emerging markets, also reported a strong start to the year.

The two are just the latest major banks to offer reassurances about their earnings after similar upbeat assessments from U.S. heavyweights Citigroup Inc. and Bank of America Corp., which fueled the recent rally in world equity markets.

However, several investors said the gains may be unjustified given the troubles still plaguing economies and companies.

"I don't think it's a real rally," investment guru James Rogers, chairman of Singapore-based Rogers Holdings and author of "A Bull in China" and other investment books, said in an interview in Hong Kong. "This is nothing more than a normal rally after too much selling."

Rogers said he expected the economic crisis to worsen in 2010 and was staying away from the equities markets.

Dariusz Kowalczyk, chief investment strategist for SJS Markets in Hong Kong, said he expected a correction this week. He said news expected this week from the U.S. Treasury Department about its bank bailout plan might lead investors to reconsider their optimism about bank balance sheets.

"This would be a good opportunity to take some profits," Kowalczyk said. "The gains we have seen so far fully take into account the positive news we've heard from Barclays and the U.S. banks."

In Tokyo, the Nikkei 225 stock average jumped 3.2 percent to 7,949.13 on hopes that the Japanese government will take further steps to reinvigorate the economy.

Prime Minister Taro Aso has called for a new, massive stimulus package that media reports say could reach at least 20 trillion yen ($200 billion). This month, Japan has been doling out about $120 to every resident as part of an earlier stimulus package.

South Korea's Kospi surged 3.4 percent to 1,156.78, but Hong Kong's Hang Seng index erased afternoon gains to end down 0.8 percent to 12,878.09.

Markets in Australia, China, and Taiwan also rose, while shares in India and Singapore declined.

Asian financials continued to post strong gains, with leading Japanese lender Mitsubishi UFJ Financial Group Inc. surging 8.2 percent. HSBC climbed 2.9 percent in Hong Kong, while Australian investment bank Macquarie Group Ltd. jumped 9 percent.

Oil prices rose. Light, sweet crude for April delivery was up 56 cents at $47.91 a barrel in European electronic trading on the New York Mercantile Exchange.

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AP business writer Jeremiah Marquez in Hong Kong contributed to this report.