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. Last Updated: 07/27/2016

Europe Stocks Fall, Dollar Firm

ReutersA trader dozing during a slow session Tuesday on the Shanghai exchange. Despite weak trading, Asian markets made gains.
LONDON -- Stocks fell and the dollar was steady in Europe on Tuesday, as investors shrugged off a global round of interest-rate cuts to focus on the risks of armed conflict and a U.S.-led global recession.

Ignoring earlier gains in Asia, shares in Europe turned rapidly negative, with banking, chemical and technology stocks reacting to a 7 percent fall in U.S. blue chips Monday, the day Wall Street resumed trading after the attacks on the United States.

"We see the market drift negatively because once you return to the real world, the news is still bad," said Robert Kerr, European strategist at Bank of America. "No amount of pump priming by the Fed will do anything with the fact the U.S. consumer [outlook] is so awful."

Yields on safe-haven European government bonds fell to two-year lows less than 24 hours after the European Central Bank joined the Federal Reserve and others in cutting rates by a half a percentage point to try and stave off recession.

The Eurotop 300 index of pan-European blue chips shed 1.76 percent and has fallen about 9 percent since last week's attacks to mine three-year lows. The narrower Euro Stoxx 50 index fell 1.61 percent.

Brent oil trading in London was steady, 7 cents higher at $28.45, but traders said they expected volatile trade.

Gold, often a haven from market turmoil, was also little moved, opening two dollars lower at $287.

S&P and Nasdaq 100 futures were flat, suggesting a steady open on Wall Street.

The Dow Jones Industrial Average tumbled 684.81 points, or 7.13 percent, to a near-three-year low of 8,920.70 on the first trading day since last Tuesday's devastating attacks.

In points terms the fall was the largest ever. But it was dwarfed by the record 22.6 percent fall of Oct. 19, 1987, and did not even rank among the 10 steepest daily declines on a percentage basis.

Shares in Tokyo rose 1.85 percent, Korea climbed 3.45 percent and Hong Kong lost 0.12 percent.

The Bank of Japan and Bank of England also followed other major central banks and cut rates as the world tries to avoid recession, though the BOE made no move at its normal fixing operation on Tuesday.

The dollar rose almost half a percent against the euro on Tuesday, supported by the previous day's coordinated rate cuts by major central banks and relief that U.S. stock losses defied the worst predictions.

The U.S. currency held about one percent above Monday's seven-month lows against the yen, with markets wary of further Japanese intervention to cap yen strength.

"The fall in stocks was not as bad as feared and the rate cuts have helped to steady the dollar from sharp falls," said Neil MacKinnon, senior currency strategist at Merrill Lynch.

"However, the political situation is very uncertain and the upside for the dollar is limited."

The dollar stood around $0.9211 per euro, more than 1 percent above Tuesday's six-month lows around $0.9330.

It stood at 117.93 yen, little changed from late New York levels and about 1 percent above seven-month troughs set a day ago.

Short term interest-rate futures, an indication of how the market views ECB monetary policy, were pointing to more rate cuts in coming months.

"There may be more [rate cuts] to come but, of course, the market always tends to overshoot a little bit," said Audrey Childe-Freeman, economist at CIBC World Markets in London.