Soft US data send world markets lower as euro slides to 6-month low on Portugal, debt fears

Soft US data send world markets lower

LONDON — World stock markets fell Thursday after economic data reignited fears about the pace of the U.S. economic recovery, while the euro slid to a six-month low against the dollar as traders fretted about the public finances in Portugal as well as Greece.

In Europe, the FTSE 100 index of leading British shares closed down 71.73 points, or 1.4 percent, at 5,145.74 while Germany’s DAX plunged 102.87 points, or 1.8 percent, to 5,540.33 The CAC-40 in France was 71.01 points, or 1.9 percent, lower at 3,688.79.

Europe’s main markets had been trading higher before sentiment was hit by the news that U.S. jobless claims last week were higher than expected and factory orders in December rose by less than anticipated.

On Wall Street, the Dow Jones industrial average dropped 164.60 points, or 1.6 percent, at 10,071.56 around midday New York time while the broader Standard & Poor’s 500 index fell 18.15 points, or 1.7 percent, to 1,079.35.

Wall Street futures had been trading higher until the Labor Department said first-time jobless claims last week dropped 8,000 to a seasonally adjusted 470,000, way higher than the consensus in the markets for a fall to 450,000.

The weekly figures increased the four week average, which smooths out volatility, for the second straight week — following 19 declines in a row — and stoked fears that next week’s U.S. non-farm payrolls report for January will disappoint.

Market sentiment was further hurt by Commerce Department figures showing orders to U.S. factories for big-ticket manufactured goods rose 0.3 percent in December, much less than the 2 percent advance economists had been expecting.

However, Steven Ricchiuto, chief economist at Mizuho Securities, noted that the headline figure masked improvements elsewhere. Excluding the volatile transportation component, he said orders were better than expected and that non-defense, non-aircraft capital goods orders also rose by 1.3 percent, building on last month’s 3.1 percent rise

Investors had been fairly upbeat until the U.S. economic data after the U.S. Federal Reserve indicated that interest rates would not rise soon and President Obama vowed to renew his focus on the economy.

The rapid turnaround highlighted just how nervous investors are at the moment — the world’s major stock markets are down 6 percent over the last ten days or so.

Analysts said those nerves are likely to remain ahead of another batch of U.S. economic data, notably the first estimate of fourth quarter gross domestic product, on Friday. The consensus in the markets at present is that GDP will surge by an annualized rate of 5.7 percent from 2.2 percent in the third quarter.

“Any slight missing of expectations, with markets still clearly jittery, could mean a more prolonged sell-off,” said David Jones, chief market strategist at IG Index.

Another big source of concern in the markets continues to be the debt situation in a number of European countries.

Portugal is now being viewed with suspicion in the markets, especially after credit ratings agency Moody’s said “a credible plan for deficit reduction will be needed to ensure the government’s ability to reverse its adverse debt dynamics, and in turn to avoid further downward pressure on its ratings.”

Moody’s last rating action on Portugal was implemented in October 2009, when the rating agency placed a negative outlook on the government’s Aa2 bond ratings.

“Sovereign debt risk in the eurozone area remains a key theme and the focus can shift to Spain and Portugal where there has also been a sharp deterioration in budget deficits and debt levels,” said Neil Mackinnon, global macro strategist at VTB Capital.

“All of this is likely to keep weighing on the euro where the trade-weighted exchange rate is now close to virtually giving up most of its 2009 gains,” he added.

By late afternoon London time, the euro was 0.4 percent lower at $1.39563 — having fallen to $1.3938 earlier, its lowest level since July 14, 2009.

Meanwhile, the dollar was 0.1 percent lower at 89.87 yen and benchmark crude oil for March deliver rose 21 cents to $73.88 barrel.

In Asia Japan’s Nikkei 225 stock average jumped 162.21 points, or 1.6 percent, to 10,414.29 and Hong Kong’s Hang Seng added 323.30 points, or 1.6 percent, 20,356.37. South Korea’s Kospi advanced 1 percent to 1,642.43.

Elsewhere, Shanghai’s market was up 0.3 percent, Australia added 0.6 percent and India’s index ticked up 0.1 percent. Taiwan’s market gained 1.8 percent.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.