European earns weigh on stocks; US seen lower

LONDON (AP) — European stocks dropped Wednesday, weighed down by earnings reports from companies including German business software maker SAP, which cut its sales forecast. Wall Street was set to open lower.

In early afternoon trading in Europe, Britain’s FTSE 100 fell 1.5 percent to 5,122.80, Germany’s DAX shed 1.5 percent to 5,553.20 and France’s CAC 40 lost 1.4 percent at 3,691.

On Wall Street, investors remained cautious about the size of a potential economic recovery. Dow Jones industrial average futures slipped 0.4 percent to 9,796 and Standard & Poor’s 500 futures were 0.4 percent lower at 1,055.80.

Major Asian markets fell by about 1.5 percent or more following weakness in the U.S. on Tuesday after a disappointing report on consumer confidence in the world’s largest economy.

In Europe, SAP AG said third-quarter net income rose 12 percent, as a drop in revenue was partly offset by a lower tax rate and better profit margins. But a negative outlook sent its shares down 7 percent. The company said it expects software and related service revenues to decline by about 6 percent to 8 percent for the full year. Earlier this year, the company had suggested a drop of between 4 percent and 6 percent.

Banking shares declined, including Banco Santander, whose third-quarter profits remained flat, with increased loan losses weighing on the bottom line despite improving business in Britain. Shares in Spain’s largest bank fell 3 percent.

ArcelorMittal SA, the world’s largest steel maker, posted a $903 million profit in the third quarter, its first after three consecutive quarterly losses. The profit was still 76 percent below year-earlier levels, and its shares sank 3.3 percent in Amsterdam.

“For the moment financial markets have clearly stagnated, with a realization hitting home that all the warnings of a return to growth being a long and painfully slow process are not just hot air,” said David Jones, chief market strategist at IG Index.

Investors were bracing for more U.S. corporate earnings reports as well as figures on U.S. new homes sales at 1400 GMT (10 a.m. EDT). They are expected to have risen in September for the sixth straight month.

Asia’s losses followed a choppy session on Wall Street Tuesday, where an unexpected drop in consumer confidence gave investors few reasons to venture further into a market that’s run massively higher in the last eight months.

The news was the latest evidence that U.S. shoppers, their budgets tightened by the economic crisis and rising unemployment, aren’t likely to return to their spendthrift ways anytime soon. It was all the more unsettling in Asia, coming ahead of the vital Christmas holiday season, when major export companies rely heavily on Americans to increase their spending on electronics, toys and other goods.

“The figure sparked worries that U.S. consumer spending in the crucial Christmas season will be stagnant. Investors are now bracing for very weak retail sales in the upcoming season,” said Masatoshi Sato, market analyst at Mizuho Investors Securities Co. Ltd. in Tokyo.

In Japan, the benchmark Nikkei 225 index lost 1.4 percent to 10,075.055. Hong Kong’s main index retreated 1.8 percent to 21,761.58.

South Korea’s Kospi dived 2.4 percent to 1,609.71, leading the declines in Asia. Australia’s market fell 1.4 percent, Taiwan’s market lost 1.6 percent and India’s Sensex benchmark fell 0.6 percent.

China’s Shanghai index recouped its losses to close up 0.3 percent,