US data reins in stock market optimism as euro slides to 6-month low on Portugal debt fears

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Soft US data hits world stock markets

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

In Europe, the FTSE 100 index of leading British shares was down 24.41 points, or 0.5 percent, at 5,193.06 while Germany’s DAX fell 52.81 points, or 0.9 percent, to 5,590.39 The CAC-40 in France was 37.15 points, or 1 percent, lower at 3,723.65

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 was down 67.94 points, or 0.7 percent, at 10,168.22 around an hour into the session while the broader Standard & Poor’s 500 index fell 7.56 points, or 0.7 percent, to 1,089.94.

Wall Street futures had actually been trading higher until the Labor Department said first-time jobless claims last week dropped by 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 to 456,250 — following 19 declines in a row — and stoked fears that next week’s U.S. non-farm payrolls report for January will be weaker than expected.

That would likely be a big blow to President Barack Obama who said Tuesday that his main objective for this year would be to reduce unemployment, which stood at 10 percent in December.

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.

Concerns about the debt situation in a number of European countries continued to hit the euro, however. Currency traders will be focused on whether the dip below $1.40 is sustained or whether it proves temporary, as it did Wednesday.

Portugal, in particular, 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 mid afternoon London time, the euro was 0.5 percent lower at $1.3953 — having fallen to $1.3938 earlier, its lowest level since mid-July — even though figures from the European Commission showed economic sentiment in the 16-country single currency zone up for the ten-month running in January.

Meanwhile, the dollar was 0.3 percent higher at 90.18 yen and benchmark crude oil for March deliver rose 45 cents to $74.12 a 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.