World stocks hit 12-week low on growth jitters

Tuesday, 14 June 2011 01:25 - - {{hitsCtrl.values.hits}}

LONDON (Reuters): World stocks fell to a 12-week low on Monday as Chinese data highlighted concerns about weaker global growth momentum, prompting investors to unwind positions in higher-risk assets and buy government bonds.

The euro was a touch lower, weighed down by the lack of progress on how to get commercial banks involved in a second bailout for Greece.

Chinese stocks ended at a 4-1/2 month low, hit by worries about the impact of monetary policy tightening in an economy which is a key driver of world growth.

China’s money growth slowed to a 30-month low in May and banks extended fewer new loans than expected, while exports to the United States and EU hit their weakest since late 2009.

Uncertainty over future U.S. monetary policy after the Federal Reserve’s $600-billion bond buying program ends this month also added to investor aversion to taking on more riskier assets, especially going into the thinner summer months.

“The bears are very much out in force across equity markets and with more downbeat economic data expected in the days ahead, it seems that they may retain the upper hand for some time yet,” IG Markets dealer Terry Pratt said. The MSCI world equity index fell 0.2 percent to its weakest since mid-March. The index has lost nearly 8 percent since hitting a three-year peak in late April and is very close to erasing all of its 2011 gains.

The FTSEurofirst 300 index was broadly steady while emerging stocks lost a third of a percent.

GREEK DEAL

The euro eased just 0.1 percent to $1.4336 against the dollar and fell toward record lows versus the Swiss franc, but remains supported by expectations that the European Central Bank will raise interest rates in July. The key risk remains the effect of any kind of restructuring or reprofiling of Greek debt.

There were signs over the weekend that German and French banks were leaning toward contributing to a Greek rescue, but it remained unclear how they could do so without triggering a default or credit default swap contracts.

That issue has pitted the ECB against Germany, which has proposed a bond swap, and a raft of other EU political decision makers.

“What the euro needs is a resolution to the Greek crisis and the politicians and the central bankers do not appear to be close to finding one,” said Kit Juckes, currency strategist at Societe Generale.

“That uncertainty is weighing on the euro and I expect it to be stuck in a $1.40-$1.47 range.”

U.S. crude oil fell 0.4 percent to $98.92 a barrel.

Saudi Arabia will raise output to 10 million barrels per day (bpd) in July, Saudi newspaper al-Hayat reported on Friday, as Riyadh goes it alone in pumping more outside official OPEC policy, aiming to place additional supplies among Asian buyers.

The bund futures rose 17 ticks.

The dollar was steady against a basket of major currencies.