By PAN PYLAS
LONDON (AP) â¿¿ Markets drifted lower on Monday despite solid economic indicators out of China and Europe and an unexpectedly strong showing by Chancellor Angela Merkel in Germany's national elections.
Though posting its best performance in 23 years in Sunday's election, Merkel's center-right bloc fell just short of an overall majority and will have to find a new coalition partner after its previous one failed to pass the 5 percent threshold needed to get parliamentary representation.
Merkel looks likely to end up leading either a "grand coalition" government with the center-left Social Democrats of defeated challenger Peer Steinbrueck â¿¿ reviving the alliance that ran Germany in her first term between 2005 and 2009 â¿¿ or, less likely, with the Greens. Whatever emerges, few analysts think there will be a fundamental change in policy within Germany and the wider 17-country eurozone. However, the process of forming a coalition could take time and uncertainty can erode confidence in financial markets.
"The negotiations between the two main parties may not be as smooth as people had hoped, which could force some market jitters," said Max Cohen, a trader at Spreadex.
In Europe, Germany's main stock index, the DAX, closed 0.5 percent lower at 8,635.29. The FTSE 100 index of leading British shares ended 0.6 percent lower at 6,557.37 while the CAC-40 in France fell 0.8 percent to 4,172.08.
The euro was also little changed, trading 0.3 percent lower at $1.3505.
Markets in Europe largely ignored a survey suggesting that the economic recovery across the 17 European Union countries that use the euro is picking up and that unemployment may be peaking. The composite purchasing managers' index â¿¿ a gauge of business activity across the manufacturing and services sectors published by financial information company Markit â¿¿ rose for the sixth month to a 27-month high of 52.1 points in September from 51.5 in August. That's further above the 50 threshold that indicates expansion and is the latest indicator to suggest the eurozone recovery is gathering pace.