British banks, builders and the pound dominated the action on Europe's financial markets on Thursday, after the U.S. sued Barclays for fraud and the Bank of England took less aggressive action than expected to cool a booming UK housing market.
Stock markets in Europe and Asia in general looked past gains by Iraqi militants and poor first-quarter growth in the United States to rise slightly, helped by some banks raising their forecasts for a U.S. economic bounce in coming months.
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But U.S. futures pointed to a lower open and shares in Barclays, the UK's third-biggest bank and one of the world's biggest traders, fell 5 percent after the New York Attorney General filed a lawsuit against the bank related to its servicing of machine-driven high-frequency trading.
Some of Europe's biggest lenders have already been fined more than $6 billion in the Libor rate-fixing scandal and are facing a raft of other suits. BNP Paribas could be fined around $10 billion for allegedly evading U.S. sanctions.
"The judicial context is becoming a real drag for the European banking sector," said Alexandre Baradez, chief market analyst at IG France. "There are fears among investors of a contagion effect from the U.S. investigations. After BNP, Barclays, who will be next?"
Stock markets in London, Paris and Frankfurt were all 0.1-0.2 percent higher in morning trade but U.S. stock futures pointed to a marginally lower open.
Oil prices dipped but were still close to their highest in nine months. Traders eyed developments in Iraq for signs exports from OPEC's second-largest producer would be disrupted.
Worries over the Sunni insurgency in northern Iraq have driven oil prices as high as $115 a barrel in the past month, the latest setback for a global economy that is still trying to get back on its feet. Wednesday's data on first-quarter U.S. growth also underlined doubts about global growth
But some investment houses responded to the U.S. figures by raising their estimates for second-quarter growth. Many judge a weak start to 2014 will be enough to keep U.S. interest rates on hold long into next year - supporting growth.
"There's a storm in the rear-view mirror, but much brighter sunshine ahead," said Kit Juckes, a strategist with French bank Societe Generale in London. "The storm does matter, though. There is every reason to be optimistic about upcoming U.S. data, and equally, every reason to expect policy to remain easy."
The steps announced by the Bank of England to cool the UK housing market failed to dampen expectations the central bank is set to raise interest rates. Those expectations have supported the pound over the past year.
Governor Mark Carney stressed that monetary policy would not be diverted by concerns over the sector and that he did not expect the measures taken on Thursday to actively constrain housing activity.
Sterling pushed back towards six-year highs against the dollar in response. Shares in a number of Britain's biggest housebuilding surged by around 5 percent.
Banks have already taken a substantial hit from a number of moves by British regulators to head off another bubble in the housing market, six years after the 2008 crash.
Still, such "macroprudential" steps, particularly if aggressive, might push back expectations of a rise in interest rates that have driven sterling 10 percent higher in a year.
"The main concern for sterling traders was whether the macroprudential norms would impact interest rate hike expectations," said Nawaz Ali, an analyst at Western Union.
"Clearly they have not, much to the relief of traders. These measures do not alter the MPC (Monetary Policy Committee) debate on hiking interest rates."