Merkel's austerity call cuts short rally on Wall Street

Stocks on Wall Street dropped sharply at the end of a mainly positive session after German chancellor Angela Merkel called for an end to government-backed stimulus programmes.

She defended her government's decision to start cutting the widening deficit with an €80 billion austerity package, drawing US investors' attention back to the financial woes in the eurozone.

The UK, too, has embarked on major government spending cuts, along with other heavily indebted European countries.

These events overshadowed US Federal Reserve chairman Ben Bernanke's cautious endorsement of future global economic growth prospects.

The Dow Jones Industrial Average fell back under the 10,000 mark, where it had been for most of the session, to shed40.73 points,  0.4%, to close at 9899.25.

Exxon Mobil led the Dow's declines with a drop of 1.9%. Bank of America was also weak, down 1.9%, while JP Morgan Chase slid 1.5%.

Still, some of the Dow's components managed to stay in the black. Among them, Boeing rose 1.2%, while Alcoa was up 0.6%.

Caterpillar was up 0.4% after boosting its quarterly dividend.

The Nasdaq Composite also lost 0.4% to finish at 2158.85, despite higher earnings and sales forecast from Texas Instruments.

The S&P 500-stock index closed 0.6% off at 1055.69 after rising to more than 1070, a level that has presented some resistance in recent days.

Other markets: Europe up, Asia mixed

European stocks rose, extending gains late in the session, boosted by strong US stocks. The euro gained against the dollar, while oil rose and gold prices fell.

The pan-European Stoxx 600 index closed up 1.9% at 244.60, ending a three-sesson losing streak.

The UK's FTSE 100 index rose 1.2% to 5085.86, France's CAC-40 index ended up 2% at 3446.77 and Germany's DAX added 2% to 5984.75.

Asian markets ended mixed with a sudden and sharp jump in afternoon trading in Shanghai helping some other markets pare losses or rebound.

Japanese stocks slid to a fresh low for 2010, hurt by weak exporters. The Nikkei Stock Average fell 1% to finish at 9439.13 for its lowest close so far this year.

China's Shanghai Composite was the day's best performer among the major regional benchmarks. The benchmark fell as low as 2501.12 before getting a shot in the arm from a strong rally in banking shares. The index ended up 2.8% at 2583.87,

The gains in Shanghai also helped a recovery in Hong Kong, where the Hang Seng Index finished 0.7% higher at 19,621.24.

Australia's S&P/ASX 200 finished 0.1% higher at 4385.33, aided by late buying, Korea's Kospi dropped 0.3% to 1647.22 and Taiwan's Taiex closed 1.1% lower at 7071.67. India's Sensex climbed 0.2% to 16,657.89 and Singapore's Straits Times advanced 0.3% to 2745.80.

Commodities: Oil, gold down

Crude-oil prices jumped after U.S. oil inventories fell for a second consecutive week, easing worries about excessive domestic supply.

Late Wednesday morning in New York, light, sweet crude for July delivery was up $2.65, or 3.7%, at $74.64 a barrel on the New York Mercantile Exchange, adding to strong gains ahead of the data.

Gold futures pulled back as participants viewed the record set Tuesday as a good time to sell, although the metal's overall upward momentum appears intact.

Early Wednesday afternoon in New York, gold for June delivery was down $19.20, or 1.5%, at $1,224.80 a troy ounce on the Comex division of the New York Mercantile Exchange.

Currencies: Euro up, dollar down

The euro and other currencies closely tied to global economic growth advanced on the dollar on Mr Bernanke’s upbeat economic assessment and unconfirmed reports China would announce strong export figure.

The euro advanced solidly above $US1.20 along with other commodity-backed currencies such as the Canadian and Australian dollars, which rose 1% against the greenback.

The euro rose to $US1.2067 from $US1.1947 late on Tuesday. The dollar was at ¥91.55 from ¥91.39.

The euro was at ¥110.33 from ¥109.18. The UK pound strengthened to $US1.4594 from $US1.4426.