Investors might have bounded into the New Year, pushing stocks up on hints of better days ahead, but Christine Lagarde, managing director of the International Monetary Fund, warned the global economy is still teetering.
"In too many places, uncertainty is holding back demand and the willingness to lend," Lagarde said at the German Council of Foreign Affairs in Berlin today. "A legacy of high public and private debt is hurting economic prospects. The global financial system remains fragile."
The IMF will lower its economic forecasts in most parts of the world Tuesday, said Lagarde, who complained that leaders in Europe and the U.S. fared poorly while addressing sovereign debt loads last year.
"Policymakers let an old wound fester, and in doing so made the situation worse,” she said.
Lagarde said Europe needs to come closer together and break the "feedback loop" between countries and banks and that U.S. leaders need to look beyond partisan differences and bring down the deficit.
"This is a defining moment," she said. "It is not about saving any one country or region. It is about saving the world from a downward economic spiral. It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand. The longer we wait, the worse it will get. The only solution is to move forward together."
Wall Street investors, who spent the fall with a bad case of the euro jitters,recently returned stocks to levels not seen since the European debt crisis worsened in July.
But the rally showed signs of stalling. U.S. retail stocks fell 0.3 percent today, slipping further from the all-time high the sector hit Thursday.
The S&P Retail Index pulled back 1.72 points to 549.72, having peaked at 560.34 last week. The Dow Jones Industrial Average gave up 11.66 points to close at 12,708.82.
Sears Holding Corp. — which after Christmas said it would close stores and has since seen its shares yo-yo down and then back up — slipped 3.3 percent to $47.39. The stock is still up 49 percent for the year so far.
Also declining were shares of The Bon-Ton Stores Inc., which fell 3.3 percent to $3.23; The Wet Seal Inc., 2.8 percent to $3.48; The Jones Group Inc., 2 percent to $9.05, and Nordstrom Inc., 1.3 percent to $49.38.
In Europe, markets were on the upswing.
The FTSE MIB in Milan led the way, advancing 1.6 percent to 15,877.22, followed by the FTSE 100 in London, which rose 0.9 percent to 5,782.56. Both the CAC 40 in Paris and the DAX in Frankfurt climbed 0.5 percent to 3,338.42 and to 6,436.62, respectively.
Retail and luxury stocks put on a mixed show. The day’s biggest gainers included Geox, which shot up 7.6 percent to 2.44 euros, and Benetton Group, which rose 2.5 percent to 3.32 euros.
Among the stocks that lost ground were Hugo Boss, which tumbled 1.7 percent to 61.47 euros; Burberry Group, which retreated 1 percent to 13.41 pounds, and Beiersdorf, which sank 1.3 percent to 43.44 euros.
The euro traded at $1.30, while the pound traded at $1.56.
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