Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, said on Friday that his research firm is sticking with the forecast it made in September: A new recession is inevitable, despite improvement in high-profile economic indicators, such as job creation and unemployment, and a stock market rally.

ECRI is one of the more widely respected firms on economic recessions, as it has never been wrong when forecasting that a recession would start, or failed to predict a recession well before it was widely accepted.

Achuthan predicts the recession will happen even without a new shock to the economy, such as a spike in oil and gas prices or a Greek sovereign debt default sparking a financial meltdown. If those things occur, he says they will simply make an inevitable recession more painful.

In fact, Achuthan said data gathered since his September forecast only confirms his view that economic growth has slowed to such a degree that a downturn is now unavoidable, likely by late summer.

“Now that we have several months of definitive hard data, this is not a forecast,” he said, pointing to key measures that don’t receive as much attention from the public or many economists.

Specifically, he identifies annual growth in industrial production, real personal income and spending, as well as the year-over-year change in gross domestic product, a broad measure of the nation’s economic activity. That GDP reading has been stuck between 1.5% and 1.6% growth for the last three quarters, far less encouraging that the rising quarterly GDP, which is more widely reported.

“Basically, growth has flatlined,” he said.

Some might think that a new downturn would be a so-called double-dip recession, in that it comes before the economy has fully recovered from the jobs lost during the Great Recession. But Achuthan said if the economy falls into recession at this point, it would be a new recession, not a double dip, given the time that has passed since the formal end of the recession in 2009 and the economic growth since then.

He said improved consumer confidence and economists’ stronger outlook are due to gains in jobs and stocks over the last six months.

The unemployment rate has fallen for five straight months, dropping to 8.3% in January compared to 9.1% in August. Filings for new jobless benefits have fallen to a nearly four-year low. And the Standard & Poor’s 500 (SPX) index has gained 27% since an October low to reach the highest level since June 2008.

Even ECRI’s own leading indicators have been showing steady improvement since October. But Achuthan said those readings are still recessionary.

He said the time it takes employers to increase staff means that job growth is a so-called lagging indicator, which reflects economic conditions in the past rather than pointing to future growth.

“Job growth always follows consumer spending growth, not the other way around,” Achuthan said.

That doesn’t necessarily mean the economy will start losing jobs again by this summer, when he expects the recession to start. He said hiring can continue in the early months of a downturn, but there will definitely be job losses ahead.

He credited stocks’ rise to central banks’ infusing the global economy with money. He said the so-called velocity of money, the number of times a dollar is spent by consumers, has fallen to a record low in recent months, which he sees as another indicator of underlying weakness.

“The world central banks are printing money as never before in history,” he said. “The money is not boosting economic growth, but [it's] still there and it goes into risk assets.”

Achuthan’s views are not widely accepted. In a CNNMoney survey of economists in December, they cut the double-dip recession risk to 20% from 30% only three months earlier. The Federal Reserve Bank of Philadelphia’s survey of economists finds that most forecast improved growth and hiring through this year and for the next three years.

Achuthan denies that he is taking a bearish view of the economy, saying that when others worried about a double-dip recession risk in the fall of 2010, he saw no signs of a downturn at that time.

But more than 50 years of economic data followed by his firm has shown him that when underlying growth slows to this degree, a recession always follows.

“I don’t like to be the skunk at the garden party,” he said.

-By Chris Isidore @CNNMoney.

These funds increased their holdings by 15% since the end of December, according to a Fitch report released Thursday.

Most of that increase stems from money markets adding to their positions in French banks, according to Fitch, which looked at roughly 45% of the $1.4 trillion managed by U.S. money market funds.
Even with the 15% increase, U.S. money market funds are still holding 65% less eurozone bank debt than they did nine months ago.

The funds now hold roughly 11% of their assets in eurozone banks, compared with 31% at the end of May 2011. That’s about one-third of the historical average.

“Fund managers are putting their toes back in the water, but very conservatively,” said Alex Roever, managing director and senior credit strategist at JPMorgan Chase.

Greece got a reprieve, but crisis not over:

In its report, Fitch warns that this modest turnaround might actually represent a new equilibrium in which U.S. money market funds remain more cautious than optimistic.

Additionally, the drop in U.S. money market funding has forced many banks in eurozone countries to scramble for alternative sources of financing and also cut back on businesses dependent on U.S. dollars.

And that’s a trend that may continue, said Fitch. So, even if money market funds regain a hearty appetitive for eurozone debt, the banks may not be willing participants.

JPMorgan’s Roever said that he expects that U.S. money market funds will likely wait to see if ratings firm Moody’s downgrades any of the eurozone banks it placed on review before investing more significantly in the eurozone.

Moody’s placed BNP Paribas, Deutsche Bank (DB), Societe Generale and 14 other banks on review last week.

The report notes that 27% of money market funds’ exposure to European banks is in the form of so-called repurchase agreements or “repos”. With repos, the banks selling them have agreed to buy back their own securities at a later date.

Money market funds are continuing to flee for the safety of U.S. Treasuries with about 19% of their cash in low-yielding, government-backed bonds. That’s above historical averages.

By Maureen Farrell @CNNMoneyMarkets.

stock market reviews

NEW YORK — Everybody knows that January predicts the stock market’s direction for the year and that the best time to sell stocks is at their spring peak. And among stock market experts, it’s a sure bet that the market will soar in the year before an election.

But what passes for stock market wisdom is suspect when given a closer look. The most common error comes when people spot two events and assume that one causes the other.

And it drives economists, math geeks and plenty of money managers nuts.

“If you look at enough data in enough different ways, you’re going to find something that isn’t really true,” says Edward Keon, who leads a mathematics team at Prudential Financial.

The same seasonal patterns seem to pop up year after year. Some are valuable and some meaningless, Keon says — like saying stocks tend to rise or fall depending on the month, the temperature in New York City or who wins the Super Bowl.;

People “are simply being fooled by randomness,” says Burton Malkiel, professor of economics at Princeton University and author of the finance classic “A Random Walk Down Wall Street.”

Spend enough time digging through numbers and you’re bound to find some that always take the same path, he says. “But none can reliably predict the future.”

Here’s an examination of some of the oldest Wall Street aphorisms.
The claim: As goes January, so goes the year.

The idea is that January works as a barometer for the stock market’s full-year performance: A strong first month often leads to a year of gains, and a weak one to a year of losses.

It comes from Yale Hirsch, father of the Stock Trader’s Almanac, and looks reliable. Since 1929, the calendar year has followed January’s lead 60 out of 83 times, according to Howard Silverblatt, senior index analyst at Standard & Poor’s. That’s a .723 batting average.

The suggestion that January somehow directs the course of the next 11 months is what irks economists and investors, including Dan Greenhaus, chief market strategist at the brokerage BTIG.

Expecting to hear praise for January’s forecasting powers, Greenhaus attacked the idea on his blog Jan. 2, the day before U.S. markets opened for 2012. He took the S&P 500 index’s returns since 1950, including dividends, and found that the four months following January also appeared to work magic. When April is down, the next 12 months return a negative 0.2 percent. When April is up, the S&P 500 returns 12.8 percent. It’s a similar story with February, March and April. But why?

“It’s true that if January is up, the year is up most of the time,” he says. “But if you look at any month, you’ll find the market tends to be up over the next 12 months. And the reason is very simple: the market tends to be up.”

The S&P 500 has climbed in three out of every four years since 1950. Pick nearly any month in which stocks rose and most of the time you’ll find that the year was headed in the same direction.

But what if stocks fall in January? It doesn’t mean the next 11 months will follow. Sometimes, the stock market starts the year in a hole and digs its way out. In 1992, the S&P 500 dropped 2 percent in January, then ended the year with a modest gain of 4.5 percent.

“If you’re starting in the hole, then the 12-month period is starting in the hole,” Greenhaus says. “That should be intuitive. Instead it gets treated as some sort of prognostication tool. It’s just what happens.”

The claim: Sell in May and go away.

Like a flock of migrating birds, the stock market tends to travel south or north depending on the season. It rises through the winter months and falls late in the spring. Investors struggle through the summer until November rolls around and the market picks up again.

“Sell in May and go away” is a well-worn saying, but the numbers seem to back it up. Since 1990, the three months starting in July have been the worst quarter for the S&P 500. Last year, the S&P hit its peak on April 29, then hit bottom Oct. 3, right on cue.

Even many skeptics think “sell in May” probably has something going for it — but they can only guess why.

“It’s harder to debunk this one,” says Nick Colas, chief market strategist at ConvergEx Group.

The flow of money into retirement plans and mutual funds may have something to do with it. Colas says databases that track cash moving into stock funds show patterns similar to the stock market trend: A strong start that evaporates as the year progresses.

In the first four months of 2011, Americans added $13 billion to U.S. stock funds, according to the Investment Company Institute. But they pulled $6.5 billion in May and then began withdrawing much more. By the end of the year, retail investors had pulled $131.8 billion out of U.S. stock funds.

Some tie the summer sluggishness to vacation season. Trading desks are thinly staffed in the weeks before Labor Day. Fewer traders means a drop in trading volume, which makes it easier for markets to take bigger swings, often down.

Here’s where that explanation falls short. Traders return to their desks after Labor Day in September and trading picks up. But for all major stock indexes, September is historically the worst month of the year. Since 1950, it’s the only month in which the stock market has fallen more than it has risen.
The claim: The third year of a president’s term is great for stocks.

U.S. presidents serve four-year terms, and the third year is usually the best for the stock market. The pattern has been remarkably solid. The Dow Jones industrial average has made gains in every third year of a president’s term since 1939, when President Franklin Roosevelt was nearing the end of his second term in office.

Looking back even further, the Dow has gained 10 percent on average in the third year of a term from 1835 through 2007, according to the Stock Trader’s Almanac. Last year, President Barack Obama’s third in office, the Dow added 5.5 percent. The next best is the election year, when the Dow has gained an average 5.8 percent.

To Keon, managing director of Prudential’s Quantitative Management Associates, the problem with banking on a president’s third term for a market rally is that it only considers two things, the stock market and the president, and ignores everything else.

Keon believes there’s something behind the long-running pattern, just not as much as many believe.

Sitting presidents want to get re-elected and may try to push spending packages to boost the economy, Keon says. He ran a study that examined the effects of interest rates, inflation and other economic activity, and the president’s ability to move markets largely disappeared.

Last year, even though the Dow turned in a modest gain, the larger S&P 500 index was flat. The best performing investments weren’t stocks but those that doubled as hiding spots from turbulent markets: U.S. Treasurys and municipal bonds.

“The market cycle is beyond the control of the political system,” Keon says. “What matters more is investors’ appetite for taking on risk.”

Copyright 2012 The Associated Press. All rights reserved.
 

The bad news is that there’s good reason to think that commodity prices are ready to wither even more. Europe is a disaster, the U.S. is too, and China’s economy is cooling fast. Since resources are priced at the margin – that is, the last unit of demand sets the price – it doesn’t take much of a slowdown to trigger drastic price cuts.

Commodity prices, as more than a few high-profile market watchers have pointed out, are way higher than their long-term trend lines suggest they should be. And while it’s true that there are more people clamouring for them today, economies always crest and trough. So commodity prices could be at risk of a steep correction even if the longer-term outlook is favourable.

Depressed yet? Don’t be. There are always opportunities, even in a market where 70 per cent of everything is somehow related to resources prices. Keep in mind, for instance, that some companies spend money on commodities rather than earning revenues from them. These producers will benefit – in some cases, a lot – from falling prices.

The trick to spotting these fortunate firms is to dig around and sharpen your pencil, because you’ll have to do some calculating. Most companies will disclose somewhere in their filings – the annual report is a good place to start – how much of their input costs are related to resources. Some will even give shareholders a sensitivity table that shows how much a percentage move in certain key input costs affects earnings.

They’ll also often reveal sensitivities to currency changes. This is just as important because as commodities fall, so will the Canadian dollar tend to lose value (there are admittedly other factors in the currency markets – political ones notably – but resources inevitably do have an influence). Companies that report in U.S. dollars are especially worth looking at.

Once you have a handle on this, you have to try to guess how much, if at all, a slowing economy will choke off demand for a company’s products, and work that in. At that point, you can gauge how much a drop in resource prices and the dollar might offset lower demand.

The accompanying table (based loosely on a packaging manufacturer) illustrates the point. About two-thirds of the company’s cost of manufacturing are related to commodity prices. If you run the numbers, a 10-per-cent drop in demand accompanied by lower prices would normally destroy almost a third of the profit. But assuming two-thirds of the input costs are resources, and using the assumptions listed in the table, the company’s profits only drop a little.

This is pretty simplistic, of course – commodity prices might fall but rest assured that the suppliers will drag their feet passing the savings on to the company, just as gas stations do with gasoline when oil prices fall. If there are only a couple of suppliers, they can drag their feet for a long time. And there are so many moving parts it’s hard to capture them all (where, for example, does the company make its stuff – here or south of the border?) But the point is to demonstrate what might happen.

The company’s stock would, of course, get crushed in the meantime. But if you’re on the ball, and able to spot the possibly mitigating factors, you might be able to get the shares cheaply.

You have to believe that the relevant resources will fall in price and stay down, and that the loonie will follow suit, naturally. But if you do, you might make the case that the market is overreacting in certain cases. And if you’re really lucky you might also benefit from rising prices. Some companies have, over the past year or so, started passing on higher commodity prices to customers. If those prices increases stick in our scenario, the rewards get juicier.

Special to The Globe and Mail

A safety net (of sorts)
Falling commodity prices and a weaker dollar can soften the blows of recession for a manufacturer of products that’s exposed to commodity inputs. While revenues fall sharply, profits fare much better in Canadian dollar terms.

The Dow Jones industrial average (INDU) was down 47 points, or 0.4%, in afternoon trading. The S&P 500 (SPX) eased 5 points, or less than 0.4%, and the Nasdaq composite (COMP) fell 27 points, or 1%.

Shares of big technology companies were among the weakest performers. Dell (DELL, Fortune 500) plunged 10% after the computer maker issued a disappointing sales outlook late Monday. Hewlett-Packard (HPQ, Fortune 500) tumbled over 4%.“Technology is not cooperating,” said David Rovelli, managing director of U.S. equity trading at Canaccord Adams. “The Nasdaq is bringing us lower.”

Stocks opened higher following upbeat quarterly results from Target. But the gains faded in the afternoon, and investors gravitated toward more defensive stocks.Telecommunications companies Verizon (VZ, Fortune 500) and AT&T (T, Fortune 500) both added about 1.5%.

Shares of financial firms, which have underperformed the market this year, were also a bright spot. JPMorgan (JPM, Fortune 500), Bank of America (BAC, Fortune 500) and American Express (AXP, Fortune 500) all gained over 1%.

Overall, traders remain wary given the uncertain outlook for the U.S. economy and the challenges facing European leaders as they struggle to resolve the festering debt crisis hanging over the euro zone.

Those concerns were behind theextreme volatility that rocked stock markets around the world last week. But trading has been more subdued this week with many shell-shocked investors moving to the sidelines or taking a vacation.

On Wednesday, only about 500 million shares changed hands on the New York Stock Exchange. Thin trading volumes can often lead to volatility in stock prices.

U.S. stocks fell Tuesday after German Chancellor Angela Merkel and French President Nicolas Sarkozy spoke about Europe’s ongoing debt troubles, but offered little in the way of action.

Target Corp, Staples Inc and Dell Inc all reported earnings for last quarter that were above analysts’ forecasts.

Companies in the Standard & Poor’s 500 are on track to report higher profits for a ninth straight quarter.

But economic growth is weak around the world, and some economists worry that a second recession may becoming. That could pull down future results.

Target and Staples both gave profit forecasts that were above Wall Street’s expectations, but Dell cut its prediction for revenue growth this year.

The Dow Jones industrial average rose 95 points, or 0.8 per cent, to 11,501 in the first hour of trading overnight. The S&P 500 rose 14, or 1.2 per cent, to 1207. The Nasdaq composite rose 24, or 1 per cent, to 2548.

Stocks were up for the fourth day out of five. The market fell yesterday on concerns about Europe’s ability to contain its debt problems.

Computer maker Dell said yesterday its profit rose 63 per cent last quarter after businesses and government agencies bought more machines. But it also cited “a more uncertain demand environment” when it cut its forecast for annual revenue growth to a range of 1 per cent to 5 per cent. That’s down from an earlier growth forecast for 5 per cent to 9 per cent. Dell stock fell 6.4 per cent overnight.

Other companies are more optimistic. Retailer Target said it expects to earn between $US4.15 per share and $US4.30 per share this year. Analysts had expected $US4.14 per share, according to FactSet. Target also said its earnings last quarter rose 3.7 per cent on grocery sales.

Office products retailer Staples raised its profit forecast for the year after saying strong international sales pushed earnings up 36 per cent last quarter. Staples shares rose 1 per cent.

Deere also raised its forecast for full-year earnings. It now expects to earn $US2.7 billion ($2.58 billion) this fiscal year, up from a May forecast of $US2.65 billion. The maker of tractors and other heavy equipment said its profit rose 15 per cent last quarter on strong demand for farm equipment. Deere, though, fell 1.9 per cent.

Crude oil rose $2.02 per barrel to $US88.67. Energy stocks in the S&P 500 rose 1.5 per cent, the most among the 10 industries that make up the index.

Companies are making more money, but many have done so by raising prices to offset higher costs. Higher food prices helped push inflation at the wholesale level to 0.2 per cent in July, according to a government report overnight. But that is still well below inflation levels earlier this year when oil prices were spiking because of violence in the Middle East. In February, wholesale inflation was 1.4 per cent.

Stocks have been particularly volatile in August. Worries rose as the US government said it may default on its debt unless it was allowed to borrow more. The government just bt the deadline to avoid a default, but the partisanship in the debate came at a cost – Standard & Poor’s downgraded the US credit rating on August 5 by one notch to AA+ from the top AAA rating.

That triggered one of Wall Street’s wildest weeks: The Dow rose or fell by at least 400 points in each of the first four days of last week, the first time that has happened.

Official figures showing slower than expected wages growth helped calm inflationary expectations and also provided a boost for investors.

At 16:15 (AEST) the benchmark S&P/ASX200 index was 56.6 points, or 1.33 per cent, higher at 4,303.9, while the broader All Ordinaries index was 54.5 points, or 1.26 per cent. up at 4,371.8.

On the ASX 24, the September share price index futures contract was up 48 points at 4,276, with 54,777 contracts traded.

Macquarie Private Wealth director Lucinda Chan said Australian Bureau of Statistics’ wages data for the June quarter grew by a less than expected pace.

She said this showed an easing of inflationary pressures and made it more likely the Reserve Bank of Australia would keep interest rates on hold next month.

“That’s one reason why the market got a little bit excited today, plus we had some strong earnings from companies,” she said.

Ms Chan said that with world markets slowing and a resolution to the US and European debt crises still a long way off, any greater gains on the market would be limited.

“We lost a lot over the last week, a huge amount in the market. We’ve seen a bit of bargain-hunting today and that has lifted the market. We’ve recovered the losses we made yesterday,” Ms Chan said.

Shopping centre owner Westfield Group rose six cents to $8.20 despite posting a 32 per cent fall in half-year profit.

Among energy stocks, Woodside Petroleum gained 44 cents to $37.76 despite an 8.1 per cent dip in first half net profit. Fellow oil and gas producer Santos was up 21 cents at $12.14 and Oil Search was seven cents stronger at $6.48.

Among the miners, BHP Billiton gained 39 cents to $39.82 and Rio Tinto was $1.03, or 1.4 per cent, higher at $74.42.

The major banks closed higher, making up losses in early trade, with Westpac up 26 cents to $20.51 a day after posting a two per cent fall in third-quarter cash earnings due to slowing credit growth.

Building materials manufacturer Boral slid 19 cents to $3.69 despite revealing full year net profit of $167.7 million after the previous year’s loss but said the outlook for the US housing sector remained poor.

Transport group Brambles was up 29 cents at $6.93 after announcing plans to offload its information management subsidiary and use the proceeds to reduce debt and invest more than $US500 million ($478.65 million) on its pallets operations.

National Australia Bank was 15 cents up at $23.36. ANZ gained 23 cents to $20.58 and Commonwealth Bank was 57 cents higher at $47.40.

At 16:15 (AEST), the price of gold in Sydney was $US1,789.9 per fine ounce, up $US20.57 from Tuesday’s local close at $US1,769.33.

Shares in gold miner Newcrest Mining were up 39 cents at $39.09.

Preliminary national turnover was 2.08 billion shares worth $5.58 billion, with 641 stocks up, 373 down, and 371 were steady.

On the ASX 24, the September share price index futures contract was up seven points at 4101 points with 48,575 contracts traded.Austock Securities strategist Michael Heffernan said the market had been buoyed by Telstra’s better-than-expected results offsetting the influence of an almost five per cent tumble by Wall Street overnight.

US stocks more than wiped out the gains of a rebound on Tuesday as European debt troubles and worries of a new US recession kept investors nervous.

Mr Heffernan expected the market to fall a further one per cent in afternoon trade.

At 12pm, Telstra shares were up 12 cents or 4.24 per cent at $2.95, making the telco one of the top performers on the Australian market this morning.

The company reported a 17 per cent fall in annual profit in 2010/11, but forecast improvements in revenue and earnings in the year ahead.

Telstra was the most heavily traded stock at midday. At 12.36pm, 74.153 million Telstra shares had changed hands since Thursday’s open, at a total value of $217 million.

In other trade, banks and financials were higher with ANZ the strongest, up 29 cents, or 1.46 per cent, at $20.09.

Westpac was 23 cents higher, by 1.14 per cent, at $20.37, National Australia Bank rose 28 cents, or 1.23 per cent, to $23.08, and CBA was up 20 cents, or 0.41 per cent, at $48.43, again moving appreciably less than its peers.

Resource stocks were lower at noon.

BHP Billiton was down 43 cents, or 1.12 per cent, at $37.97, while Rio Tinto lost $1.35, or 1.87 per cent, to $71.00.

Making news, David Jones shares were down 5.36 per cent, by 15 cents, at $2.65 after the department store downgraded its profit forecast for the first half of fiscal 2012 as first quarter sales showed no improvement from the preceding quarter.

The spot price of gold in Sydney was $US1797.30 per ounce ($1753), up $50.20 from yesterday’s local close of $1747.10 per ounce.Gold miner Newcrest Mining was up $1.79, by over five per cent, at $41.04, benefiting from the surge in the gold price as investors resort to safe havens in the midst of market turmoil in the US and Europe.

At 12.19pm, Alumina Limited was the worst performer in the top 100, its shares down 13 cents, or 6.84 per cent, at $1.77, after the company posted a 53 per cent rise in first half profit.

National turnover at midday was 1.2 billion shares worth $3 billion, with 303 stocks up, 686 down and 248 were steady.

The leaders of the eurozone’s biggest economies, Germany and France, announced they will meet Tuesday to discuss solutions to Europe’s financial difficulties.French President Nicolas Sarkozy’s office said that the two will come up with “joint proposals” on the governance of the eurozone before the end of the summer. Chancellor Angela Merkel’s spokesman said the meeting would focus on suggestions for how to improve the zone’s economic policy and crisis management.

Bank of France head Christian Noyer blamed “unfounded rumors” for plunges in the shares of top banks, including Societe Generale and BNP Paribas, and said the country’s financial institutions were sound. The country’s market regulator warned of sanctions against anyone who fuels or profits from rumors that fed the sell-off

Noyer said that French banks’ first-half earnings “confirmed their solidity in a difficult economic environment” and that the banks’ capital cushions were healthy.

The stocks continued to drop until strong U.S. jobs data helped propell solid gains on Wall Street late in the European trading day. BNP Paribas closed up 0.3 percent and Societe Generale rose 3.7 percent.

The European Union’s markets supervisor said regulators were increasing surveillance of financial markets following the days of steep selloffs. Greece on Monday banned short-selling — profiting from bets on the decline in a share price — but no other national regulators have followed suit so far. Consob, Italy’s stock market watchdog, said it would meet on Friday morning before the markets open to decide whether or not to take measures about short-selling, which has been blamed for contributing to market volatility.

France is taking pains to assure markets that it won’t be the next to see its credit rating downgraded.

Sarkozy cut short his holiday Wednesday and ordered his ministers to come up with new budget cuts to ensure that France sticks to deficit-cutting targets.

All three leading credit rating agencies reaffirmed their triple-A assessment of France, and analysts said they could not identify a trigger for the market turmoil.

“There’s nothing behind it, it’s a market of malintentioned speculators trading on pure rumors,” said Marc Touati, an economist at French trading firm Assya Compagnie Financiere.

After Societe Generale, France’s second-biggest bank, saw its share price drop nearly 15 percent Wednesday, the bank asked the French market regulator, the AMF, to investigate the rumors that it was on the ropes because of its heavy exposure to debt from troubled eurozone economies.

Societe Generale CEO Frederic Oudea called the rumors “totally unfounded” and “irrational.” Speaking on France-Info radio, he urged calm and insisted that the bank’s fundamentals are sound.

Oudea said Societe Generale had already accounted for its exposure to Greece’s debts in its second quarter earnings.

“S&P is not going to downgrade France any time soon. Nor are Moody’s or Fitch,” Gary Jenkins of Evolution Securities said. “Growth will be the key to the stability of the ratings for France, U.K and the U.S. over the next 12 months.”

He said there will be extra attention to France’s release of second-quarter GDP figures on Friday, and warned that France could suffer if it has to spend significant new money to bail out more struggling eurozone states.

France’s growth prospects are considerably better than those of Italy and Spain’s, but its economic expansion is slowing and it’s failed for years to reduce a deficit that stood at 7.1 percent last year. No other eurozone economy with a triple-A rating has a higher debt than France’s — around 85 percent of national income.

Adding to market worries, French presidential elections scheduled for the spring of 2012 may make it difficult for the government to implement further austerity measures at a time when the economy is slowing.

Elsewhere in Europe, Greece announced a rise in unemployment after a series of unpopular austerity measures aimed at dragging it out of debt that sparked troubles across the eurozone.

And Italy’s finance minister, Giulio Tremonti, told lawmakers Thursday that tough and speedy measures are needed over the next two years to balance the budget in 2013. The market turbulence has seen Italy’s borrowing costs in the markets spike up to uncomfortably high levels.

Futures on the Dow Jones Industrial Average DJ1U +2.98% fell 49 points to 10,676 at last check. Trading was very volatile and sentiment was fragile; Dow futures had been up more than 200 points earlier.Futures on the Standard & Poor’s 500 stock index SP1U +0.37% slipped 5.50 points to 1,118, while Nasdaq 100 futures ND1U +0.59% dropped 1.75 points to 2,083.25.

“Market jitters remain extremely high and are even taking on near-absurd proportions,” said analysts at Raiffeisen Research in a note.The blue-chip Dow industrials DJIA +3.31% sank 519.83 points, or 4.6%, on Wednesday — the third consecutive trading day when the benchmark has swung more than 400 points.

Asian equity markets ended mixed overnight. Japan’s Nikkei Stock Average fell 0.6%, while China’s Shanghai Composite index rose 1.3%.In Europe, stock markets turned lower in late-morning trading. Shares of French banks were hit once again, with Societe Generale FR:GLE +3.70% down 7.4% in Paris.

Cisco in spotlight

Shares of blue chip Cisco Systems CSCO +16.10% surged 12% ahead of the opening bell. The networking equipment firm reported a 36% drop in fourth-quarter net profit, but its adjusted earnings and revenue beat analyst forecasts.

In other corporate news, department-store operator Kohl’s Corp. KSS +7.38% reported Thursday second-quarter results and raised its annual earnings forecast to a range between $4.45 and $4.60 a share, up from $4.25 to $4.40 a share.

After the close of trading in U.S. stocks, technology firm Nvidia Corp. NVDA +6.57% will report second-quarter results.

Shares of AOL Inc. AOL +13.31% could be active after the company announced a stock-buyback program pegged at $250 million.

In the currency markets, the U.S. dollar was marginally higher against most other major currencies, with the dollar index DXY -0.14% gaining to 74.965. The greenback managed a narrow gain on the euro.

December gold futures GC1Z -1.90% fell $13.30 to $1,772 an ounce in electronic trading on Globex.

September oil futures CL1U +0.97% slipped 65 cents to $82.24 a barrel.