Global stocks fall on U.S. growth worries; euro stumbles

Saturday, 10 September 2011 00:37 -     - {{hitsCtrl.values.hits}}

Reuters: World stocks fell on Friday, keeping safe-haven government debt well-bid on investor worries that U.S. policymakers are not taking urgent steps to stop the world’s biggest economy from tipping back into recession.

The euro sank to a near six-month low against the dollar after the region’s festering debt crisis forced the European Central Bank on Thursday to shift away from further rises in interest rates, a key driver in the single currency’s rally this year.

European stocks snapped a two-day recovery after U.S. Federal Reserve Chairman Ben Bernanke left the door open for new stimulus measures but stopped short of signalling the central bank would take the plunge.

Equity markets were also concerned that President Barack Obama’s proposed $447 billion package of tax cuts and spending plans aimed at boosting growth and job creation could be hamstrung by political wrangling when it goes to Congress.

“Investors are holding back...There isn’t any reason to commit until you can see credible policies,” Justin Urquhart Stewart, director at Seven Investment Management, said.

“Bernanke was never going to say anything. He made it clear at Jackson Hole he was pushing it back to the politicians. Obama has come up with this stimulus package. We now have to digest what effect this will have, assuming it is passed.”

European shares fell 1.1 percent, pulling down the MSCI world equity index 0.7 percent. S&P futures were down 0.3 percent, indicating a lower open on Wall Street later in the day.

Market confidence has been fragile this week due to growing concerns over the global economy and Europe’s debt crisis, with Friday’s deadline for bond holders to decide on Greece’s swap offer adding to the nervousness.

Investor focus was now on G7 finance ministers and central bankers meeting later on Friday when the faltering global recovery and Europe’s problems are likely to be the main issues of the day.

Host France has called for co-ordinated action to boost growth, but the divergent economic problems facing the United States, Britain and the euro zone are complicating the task.

“There is some expectation doing the rounds that the G-7 meeting will produce a key coordinated policy response. We have our doubts,” Lloyds strategists said in a note. “In this environment, while acknowledging scope for bouts of near-term risk-asset buoyancy, we continue to anticipate money flowing into higher-grade fixed-income product into yield back- ups.”

Safe-haven German government bond prices surged, with Bund futures jumping almost one full point to a record high of 137.44 and benchmark U.S. T-note yields hovering within striking distance of 1.908 percent , its lowest in 60 years hit on Tuesday.

The euro was last down 0.4 percent against the dollar at $1.3832, its lowest in nearly six months with traders saying selling in the single currency accelerated when stop-loss orders were triggered below $1.3840.

Analysts saw more downside as sentiment stays negative after the ECB dropped its tightening bias and investors believe a lasting solution to euro zone debt crisis remains elusive. “The ECB has now left the door open for an easing of policy and there are more downside risks to come for the euro with Greek PSI (private sector involvement) to be finalised and ratification of the EFSF still required.” said Kiran Kowshik, currency strategist at BNP Paribas.

Gold, propelled to a series of records in recent months due to its appeal as both a safe haven and hedge against inflation, was up 0.6 percent at $1,878 an ounce, after jumping 3 percent in the previous session.

Oil, which had dipped on Thursday as the dollar rose, making it more expensive for holders of other currencies, was a touch lower, with U.S. crude futures trading 0.6 percent down around $88 a barrel and Brent crude at $114.59.