US data weighs on world markets but euro surge continues as it hits fresh three-month high

US data weighs on stocks but euro surge continues

LONDON — European and U.S. stock markets mostly dipped Tuesday after big gains the day before, while the euro spiked to a fresh three-month high against the dollar after another round of disappointing U.S. economic data.

The FTSE 100 index of leading British shares closed down just less than a point at 5,396.48 while France’s CAC-40 fell 4.52 points, or 0.1 percent, to 3,747.51. Germany’s DAX ended 15.78 points, or 0.3 percent, higher at 6,307.51.

In the U.S., the Dow Jones industrial average was down 17.49 points, or 0.2 percent, at 10,656.89 around New York time while the broader Standard & Poor’s 500 index fell 2.59 points, or 0.2 percent, at 1,123.27.

On Monday, stocks in the U.S. and Europe posted hefty gains after better-than-expected manufacturing surveys revitalized hopes about the global economy at the start of a busy week of economic news.

Any hopes that investors would build on those gains diminished after a batch of downbeat U.S. economic data.

The Commerce Department reported that consumer spending and income were unchanged in June and that factory orders dropped more than predicted during the month. And a separate report from the National Association of Realtors said pending home sales slid to a new record low last month.

“A bout of weakness in the U.S. in reaction to worse-than-expected home sales and factory orders data unsettled traders,” said Will Hedden, a sales trader at IG Index.

There’s been more activity in the currency markets, where the euro’s rally has gathered pace. By late afternoon London time, the single European currency was trading 0.4 percent higher at $1.3229, slightly lower on its earlier three month high of $1.3261.

Over the last month or so, the euro has returned to favor as fears over the government debt crisis gripping a number of countries, most notably Greece, have eased, at the same time as a run of data have shown the U.S. economic recovery losing momentum.

The focus over the rest of the week will likely be Thursday’s interest rate meeting at the European Central Bank and whether the bank’s president Jean-Claude Trichet sounds a more confident tone in his monthly press conference.

Perhaps more important will be this Friday’s U.S. non-farm payrolls data for July. The figures often set the market tone for a week or two, particularly in August, when trading volume slumps as investors, particularly in the U.S. and Europe, head off to the beach.

If the jobs data disappoint, then the markets will be on alert for further monetary measures from the U.S. Federal Reserve, which could weaken the dollar — one of the reasons why the dollar advanced strongly during the first half of 2010 was that the market was pricing in a greater likelihood of the Fed getting policy back to normal than the ECB.

“Worsening the near-term position of the dollar against the euro is the perceived contrast between the policies of the Fed and the ECB,” said Jane Foley, research director at Forex.com.

Earlier in Asia, most stock markets rallied in the wake of Monday’s big gains in Europe and the U.S..

Japan’s benchmark Nikkei 225 stock average jumped 123.70 points, or 1.3 percent, to 9,694.01 and South Korea’s Kospi rose 0.5 percent to 1,790.60. Australia’s S&P/ASX 200 added 0.7 percent to 4,571.60 and Hong Kong’s Hang Seng advanced 0.2 percent to 21,457.66.

China’s Shanghai Composite Index ended 1.7 percent lower at 2,627 however, though it had outperformed its counterparts in Asia on Monday.

The rally in oil prices continued, with benchmark crude for September delivery up 59 cents at $81.93 a barrel in electronic trading on the New York Mercantile Exchange. That’s just shy of its earlier intraday three-month high of $82.10 a barrel.