World stocks vacillate on EU crisis pact aftermath

World stock markets vacillated on Tuesday as criticism by ratings agencies sparked doubts about a historic European Union plan to fix a massive debt crisis by binding member economies closer together.

Benchmark oil rose above $98 per barrel while the dollar fell against the euro and the yen.

European stock markets headed higher amid improved investor sentiment after a day of risk-averse trading in Asia. Britain's FTSE 100 rose 0.5 per cent to 5,452.76 while Germany's DAX gained 0.8 per cent 5,830.93. France's CAC-40 added 0.6 per cent to 3,108.22.

Wall Street was also poised to claw back gains, with Dow Jones industrial futures rising 0.3 per cent to 11,982 and S&P 500 futures up 0.3 per cent at 1,233.50.

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Stocks took a battering earlier in Asia. Japan's Nikkei 225 fell 1.2 per cent to close at 8,552.81. South Korea's Kospi gave up 1.9 per cent to 1,864.06. Hong Kong's Hang Seng lost 0.7 per cent to 18,447.17. Benchmarks in Australia, Singapore, Taiwan and Indonesia also fell. India, Malaysia and the Philippines rose.

On mainland China, the benchmark Shanghai Composite Index fell 1.9 per cent to 2,248.59, its lowest in closing since March 2009. The Shenzhen Composite Index lost 3 per cent to 921.32.

FULL COVERAGE: Global economic crisis

Markets jumped on Friday when all 17 countries that use the euro agreed to adopt a new fiscal pact meant to prevent a repeat of the financial fiasco that is now sweeping Europe. The pact would see a central European authority oversee their future budgets and impose tighter controls on spending. They also agreed to automatic penalties if countries spend too much.

Other nations that are in the European Union but don't use the euro also indicated they would sign up, with one exception - Britain.

Optimism evaporated on Monday when credit rating agencies Moody's and Fitch both said the deal was insufficient and would not materially address the crushing debt loads of some nations or their rising borrowing costs.

Moody's warned that it will review all EU governments' ratings for possible downgrades in early 2012 - a threat that analysts said was particularly worrisome to France, a major contributor to the European Financial Stability Facility, Europe's emergency bailout fund. A downgrade of France's triple A rating could hurt its ability to fulfill its commitments to the fund.

Meanwhile, the Indian rupee hit a fresh record low Tuesday, after a contraction in industrial output reported the day before.

The currency touched 53.52 against the dollar, down over 21 per cent since late July. It is the third time in three weeks that it has breached prior lows.

The plunging currency is further darkening the economic outlook for Asia's third largest economy. While a weak rupee can help exporters, it wreaks havoc with India's giant oil import bill, deepening the country's growing deficit.

"It clearly reflects the slowing economy in India and also the flight to the dollar of global money," said SMC Global Securities strategist Jagannadham Thunuguntla.

Wall Street traded lower Monday. The Dow closed down 1.3 per cent at 12,021.39, a loss that erased nearly all the Dow's gains from last week. The S&P 500 lost 1.5 per cent to close at 1,236.47. The Nasdaq composite index dropped 1.3 per cent to 2,612.26.

Benchmark oil for January delivery was up 38 cents to $98.14 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.64 to finish at $97.77 per barrel on the Nymex on Monday.

In currency trading, the euro rose to $1.3202 from $1.3186 late Monday in New York. The dollar was down at 77.73 yen from 77.91 yen.