Gloom grips markets braced for US earnings season

Investors braced Tuesday for the US corporate earnings season that many expect will be brutal as the prolonged recession bites, and data showed a steeper contraction in the eurozone.

Pessimism gripped financial markets, particularly stock markets, as the US corporate earnings season got under way and concerns mounted about the embattled banking sector.

"Doubt has returned,"analysts said.

"There is plenty of reason to suspect that this is not a typical cycle and that the market perhaps got ahead of itself" in posting a four-week Wall Street rally, they said in a client note.

Financial sector concerns hammered markets after a newspaper report highlighted the depth of the bad asset problem plaguing institutions.

According to the Times of London, the International Monetary Fund IMF will project troubled assets racked up by banks and insurers will rise to four trillion dollars,

The IMF said in January that it expected the deterioration in US-originated assets to reach 2.2 trillion dollars by the end of 2010, but its next forecast sees 3.1 trillion dollars, the report said.

In addition, the IMF was likely to forecast 900 billion dollars for toxic assets originated in Europe and Asia, the Times said.

The IMF declined to comment on the report.

"Financials are ... under pressure after the London Times reported the International Monetary Fund was set to forecast that the 'toxic assets' that are clogging banks' balance sheets could reach four trillion dollars," said analysts at Charles Schwab & Co. brokerage.

US banks begin reporting earnings next week.

Wachovia Securities chief market strategist Al Goldman underlined "continued concern over the financial institutions."

"The market is more vulnerable to the expected poor first-quarter earnings' and disappointing management' outlooks given the recent sharp advance in stocks," Goldman warned.

News of a deeper than expected recession in the eurozone, a massive contraction projected for Ireland, and a World Bank forecast of slowing growth in East Asia also stoked fears the global economic downturn has no end in sight.

The Eurostat statistics agency said the eurozone suffered a 1.6 percent contraction in the 2008 fourth quarter, slightly worse than the prior 1.5 percent forecast. It was the bloc's third consecutive quarterly contraction.

"The negative European GDP numbers were worse than expected," said Manus Cranny, markets commentator at MF Global Spreads in London.

"They are a stark reminder that 2009-2010 is going to be an incredibly tough year."

"The question remains whether analysts have lowered expectations enough."



AP/Ron Edmonds

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