European stocks recover, euro dips

European stock markets rebounded on Wednesday and the euro dipped against the dollar as investors digested mixed signals on the strength of the global economy.

London's benchmark FTSE 100 index rose 0.20 percent in late morning deals, Frankfurt gained 0.38 percent and Paris won 0.61 percent following gains for some indices in Asia and overnight on Wall Street.

"The recent volatility and tug of war between equity market bulls and bears continued apace in the US overnight as the bulls managed to push the Dow higher after a rise in crude oil prices," CMC Markets analyst Michael Hewson said.

He also said that comments from Fed chairman Bernanke about the unlikely scenario of a double-dip recession "has seen some risk come back on the table."

He added: "This rise in risk was immediately offset by data showing that Chinese consumer prices hit the three-percent level in May fuelling concern of an overheating economy and possible measures to rein back stimulus."

In foreign exchange trading, the euro fell to 1.1956 dollars from 1.1967 dollars late in New York on Tuesday.

The European single currency plunged at the start of the week to 1.1876 dollars -- its lowest level for more than four years.

On Wednesday, the dollar dipped to 91.43 yen from 91.47 yen.

Gold prices meanwhile fell on the London Bullion Market, one day after hitting a record high above 1,250 dollars. Gold, viewed as a safe-haven investment in times of economic trouble, had struck a record 1,252.11 dollars an ounce on Tuesday

Markets are concerned that the Greek budget crisis, at the epicentre of the European debt debacle, could spread "like wildfire" while the eurozone might slip back into recession by year-end, said analyst Michael Wright of Forex Capital Markets.

He said that even though a Hungarian sovereign debt default was unlikely, comments by government officials last week had stirred market fears about such a possibility.

On Tuesday, Hungary's Prime Minister Viktor Orban unveiled public spending cuts amid concern on European and international markets that Hungary's situation was comparable to that of debt-stricken Greece.

Official data published on Wednesday showed that Hungary emerged from recession in the first quarter of the year when the economy expanded by 0.9 percent, driven by rising exports and government spending.

However Finland's economy slipped back into unexpected recession in January-March when gross domestic product (GDP) contracted for the second quarter in a row, separate official data showed.

US stocks ended mixed on Tuesday but the Dow index jumped after an assurance by Federal Reserve chief Ben Bernanke that the US economic recovery was sustainable despite the European fiscal crisis.

The Dow Jones Industrial Average shot up 1.26 percent after two consecutive sessions of hefty losses that brought the blue chip index Monday to its lowest level this year.

In Asian trading on Wednesday, the rally on Wall Street was offset by fresh fears over European debt levels, traders said.

Japan's Nikkei was sent to its lowest level for the year in intraday trade owing to dealers selling up as the yen strengthened, which hurts exporters.

The index closed 1.04 percent lower, while Hong Kong staged a late surge to close up 0.69 percent and Seoul ended down 0.26 percent.