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World stocks falter on fears of only 'modest' US recovery

Video by Gaëlle Faure

Text by News Wires

Latest update : 2010-08-12

Markets in Asia and Europe mostly fell on Thursday following a Federal Reserve warning a day before that the US recovery would be "modest" as well as gloomy growth forecasts from both China and the Bank of England.

AP - World stock markets mostly fell again Thursday, though the selling pressure paled in comparison with the rout the previous day when investors were unnerved by downbeat economic news and the Federal Reserve’s warning that the U.S. economy is not growing as fast as anticipated.
In Europe, Germany’s DAX closed down 18.90 points, or 0.3 percent, to 6,135.17, while the CAC-40 in France fell 7.22 points, or 0.2 percent, at 3,621.07. However, the FTSE 100 index of leading British shares ended 20.85 points, or 0.4 percent, higher at 5,266.06.
On Wall Street, the Dow Jones industrial average was down 44.20 points, or 0.4 percent, at 10,334.63 around midday New York time, while the broader Standard & Poor’s 500 index fell 4.85 points, or 0.5 percent, to 1,084.62.
The falls are less than half the declines recorded on Wednesday, when fears about the global economic recovery stalked markets following the Fed’s warning and disappointing Chinese consumption data. That selling pressure continued into the Asian trading day, with most of the continent’s main markets down around 1 percent at the close.
“Overall the market mood has turned subdued since Tuesday as investors become risk adverse, unable to ignore the plethora of poor data that has started to overhang the world economy,” said Phil Gillett, a trader at Spreadex.
Whether the mood turns around could well hinge on U.S. retail sales figures for July on Friday _ the consensus in the markets is that they rose a monthly 0.4 percent.
U.S. retail sales are particularly important because they shine a light on the state of consumption, a key driver of growth. U.S. retail spending accounts for around 70 percent of the world’s largest economy. The consensus in the markets is that they rose a monthly 0.4 percent.
“Retail sales data out of the U.S. are going to be closely watched to see if they can counter the pessimism that has hit sentiment in the last couple of days,” said David Jones, chief market strategist at IG Index.
The impact of the deteriorating economic picture isn’t just felt in shares, though.
In this case, the dollar has recovered its poise after a month of selling as it shines in its status as one of the world’s leading safe haven assets. Its capacity as the world’s number one reserve currency more than offsets worries about the U.S. economy’s prospects or that interest rates are likely to stay lower for longer than previously expected.
It’s been particularly strong against the euro, which plunged around 3 cents on Wednesday.
By late afternoon London time, the euro was up 0.1 percent on the day at $1.2853, its fortunes little helped by an unexpected 0.1 percent decline in the euro area’s industrial output in June and the news that Greece’s economy shrank by a greater than anticipated 1.5 percent in the second quarter of the year.
Those figures came a day ahead of wider economic growth figures for the whole 16-country eurozone. They are expected to show that the eurozone economy grew by a quarterly rate of around 0.6 percent.
Neil Mellor, a currency strategist at Bank of New York Mellon, said that the dollar’s recovery against the euro may, at first glance, appear to be “rather surprising” given that the Fed has effectively rubber-stamped the market’s view on U.S. interest rates _ they aren’t going to go up anytime soon.
He said “the answer is possibly to be found in the eurozone debt markets themselves,” which have been fairly quiet of late after six months of turmoil nearly brought the whole single currency project to its knees. Following a bailout of Greece and a wider support package for other eurozone members, European government bond markets have settled down.
However, Mellor noted that in the course of the last week, some jitters have returned, and the spread between the interest rates on 10-year bonds from the periphery countries _ Greece, Ireland, Spain and Portugal _ and those of Germany have started to widen again.
The dollar has also recovered slightly against the yen, though the Japanese currency is also considered a safe haven.
By late afternoon London time, the dollar was up 0.7 percent at 85.83 yen.
On Wednesday, it had fallen to a 15-year low of 84.75 yen.
The recent strength of the yen has been hitting Japanese stocks hard over the last few weeks, as investors worry about the potential negative impact on Japan’s exporters.
The benchmark Nikkei 225 stock average closed down 80.26 points, or 0.9 percent, to 9,212.59.
South Korea’s Kospi dived 2.1 percent to 1,721.75, Australia’s S&P/ASX 200 fell 1.2 percent to 4,400.90 and Hong Kong’s Hang Seng retreated 0.9 percent to 21,105.71.
The Shanghai Composite Index dropped 0.7 percent to a two-week low of 2,575.48.
Worries about the global economy have also hit oil markets hard over the last few days, with a barrel of oil down around $5 this week. Benchmark crude for September deliver was down $1.54 at $76.48 in electronic trading on the New York Mercantile Exchange. The contract slid $2.23 to settle at $78.02 on Wednesday.

Date created : 2010-08-12

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