EUROPE MARKETS: European Stock Gains Limited As Auto, Mining Shares Fall

By Carla Mozee, MarketWatch Features Dow Jones Newswires

So far, 'limited' effects from negative rates, says ECB's Draghi

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Most major European markets ebbed lower Wednesday, with automobile makers Daimler AG and Fiat Chrysler Automobiles and mining stocks among those struggling, but stayed in the red after European Central Bank President Mario Draghi maintained his dovish tone.

Among benchmarks, Germany's DAX was off 0.2% at 12,636.89 and Italy's FTSE MIB declined 0.3% to 21,350.88.

But the Stoxx Europe 600 clung to a gain of less than 1 point at 392.21, as most most U.K. blue-chips rose, lifting the FTSE 100 up 0.3% to 7,510.66 (http://www.marketwatch.com/story/mining-retail-shares-tug-ftse-100-slightly-into-the-red-2017-05-24).

On a sector basis in Europe, utility, basic material and consumer goods shares were in the red, but health care, technology and telecom stocks were among those advancing.

China cut: Investors entered Wednesday's session with a downgrade of China's credit rating at Moody's for the first time in nearly 30 years (http://www.marketwatch.com/story/moodys-downgrades-china-rating-for-the-first-time-in-nearly-30-years-2017-05-24), to A1 from Aa3. Moody's cited concerns about the impact that rising levels of debt will have on the world's second-largest economy, which is a major buyer of industrial and precious metals.

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Mining shares were lower, with Fresnillo PLC (FRES.LN) down 1.8% and iron ore heavyweight Rio Tinto PLC (RIO) (RIO) (RIO) off 1.6%. Boliden AB (BOL.SK) was losing 0.7% and Norwegian aluminum company Norsk Hydro ASA (NHYDY) gave up 1.3%.

Investors have already been aware of China's credit-expansion issue, said Mark Williams, chief China economist at Capital Economics, in note.

"The greater concern, in our view, is not what the debt build-up is doing to government creditworthiness. Instead, it is that loose credit policies designed to prevent struggling firms from failing are eroding the economy's long-run growth potential by preventing resources from being allocated to areas where they could be used more efficiently," he wrote.

Central banks: There's been "an increasingly solid recovery" in the eurozone economy although underlying inflation pressures are still subdued, said Draghi at a speech in Madrid at Banco de España. Eurozone PMIs released Tuesday showed economic activity has remained at a six-year high.

But Draghi also said he doesn't see it necessary to change course on its policy direction, which includes an overnight deposit rate set at negative 0.4%. The ECB has said it could increase the size or lengthen the duration of its asset-buying program if inflation looks set to fall far back below its target of near but just below 2%.

"[I]n in a multi-country monetary union such as the euro area, made up of segmented national financial markets, asset purchases are inevitably more difficult to calibrate, more complex to implement, and more likely to produce side effects than other instruments, including moderately negative rates," Draghi said. "Negative rates may also have unwarranted side effects, but those have so far remained limited."

After Draghi's speech, the euro was buying $1.1195, up from $1.1184 late Tuesday in New York. The currency pair will be in focus when the Federal Reserve releases the minutes from its most recent meeting at 7 p.m. London time, or 2 p.m. Eastern Time.

Investors have largely priced in a rate hike by the Fed at its June 13-14 meeting, so markets will watch for any language that suggests policy makers may hold off on the anticipated move.

Read:Fed minutes may quell doubt about a June interest-rate hike (http://www.marketwatch.com/story/fed-minutes-may-quell-fresh-doubts-about-a-june-rate-hike-2017-05-19)

Stock movers: Daimler AG (DAI.XE) fell 2.1%, leading decliners on the DAX, after German authorities raided the company's Stuttgart headquarters (http://www.marketwatch.com/story/daimler-offices-raided-in-diesel-emissions-probe-2017-05-23)and other sites to secure evidence in their investigation in possible diesel-emissions fraud by the car maker. Prosecutors said on Tuesday the offices were raided.

Fiat Chrysler Automobiles NV (FCA.MI) (FCA.MI) fell 1.1%, with the car maker late Tuesday saying it was "disappointed" the U.S. Justice Department filed a complaint (http://www.marketwatch.com/story/fiat-chrysler-chafes-against-claims-of-diesel-emissions-cheat-shares-fall-2017-05-23) against the company related to allegations it used software to cheat diesel-emission tests.

Kingfisher PLC shares (KGF.LN) fell 7.1% after the parent of home-improvement stores B&Q and Castorama said first-quarter comparable sales fell 0.6% (http://www.marketwatch.com/story/kingfisher-quarterly-same-store-sales-decline-2017-05-24) on weak sales in France and disruption caused by a company overhaul.

Shares of French aerospace supplier Safran SA (SAF.FR) and Zodiac Aerospace (ZC.FR) each remained halted after Safran said it cut its bid price (http://www.marketwatch.com/story/safran-cuts-offer-for-zodiac-aerospace-by-15-2017-05-24) for the plane cabin-interior specialist following Zodiac's profit warning.

(END) Dow Jones Newswires

May 24, 2017 10:54 ET (14:54 GMT)