Grim US economic news hits world markets hard ahead of scheduled speech by Fed’s Bullard

Grim US economic news hits world markets

LONDON — European and U.S. stock markets slid Thursday after another batch of disappointing U.S. economic data stoked fears that the world’s largest economy could be heading back into recession. The dollar was back under pressure and heading towards a fresh 15-year low against the Japanese yen.

In Europe, the FTSE 100 index of leading British shares was down 77.22 points, or 1.5 percent, at 5,225.65 while Germany’s DAX fell 101.48 points, or 1.6 percent, to 6,084.83. The CAC-40 in France was 51.77 points, or 1.4 percent, lower at 3,596.16.

In the U.S., the Dow Jones industrial average was down 142.74 points, or 1.4 percent, at 10,272.80 an hour into the session while the broader Standard & Poor’s 500 index fell 15.8 points, or 1.4 percent, to 1,075.36.

Wall Street futures had been trading higher earlier in the session following news that Intel Corp. is acquiring McAfee Inc. for $7.68 billion, in another sign that corporate activity is picking up.

However, news that the number of initial claims for U.S. unemployment benefits jumped by 12,000 to 500,000 last week reined in the optimism as the consensus in the markets was for a modest drop in claims.

Even worse was a survey from the Philadelphia Federal Reserve that raised fears that the manufacturing sector in the mid-Atlantic region could already be in recession — its main index dropped to a 13-month low of minus 7.7 in August from plus 5.1 the previous month.

“Today’s news on the U.S. economy has been nothing but awful,” said Paul Ashworth, senior U.S. economist at Capital Economics.

In the wake of those grim readings, investors will be focusing even more closely on a speech later by St. Louis Fed president James Bullard, who has already suggested that further stimulus measures are possible to get the U.S. economic recovery back on track.

While U.S. growth hopes have diminished, there are rising expectations about the European economic recovery, after figures showed a surprisingly big 1.1 percent monthly rise in British retail sales in July and Germany’s central bank revised up its forecasts.

The Bundesbank now thinks that the German economy, Europe’s largest, will grow by about 3 percent this year after a spectacular second-quarter growth spurt — that’s way up on its previous forecast of 1.9 percent.

However, the Bundesbank warned of a slowdown in the second half of the year as the global recovery stalls.

As a result, the euro has not garnered much support from the seemingly divergent trend, trading only 0.1 percent higher at $1.2873.

Earlier in Asia, most stock markets ended the session modestly higher. Japan’s Nikkei 225 stock average was the standout, closing 122.14 points, or 1.3 percent, higher at 9,362.68.

There’s growing market speculation that the Bank of Japan is examining fresh measures to boost liquidity, that could rein in the appreciation of the yen, which has been a major concern for many of Japan’s export-dependent businesses.

Meanwhile, the yen’s rise showed few signs of slowing down and the Japanese currency was heading back towards 15-year highs against the dollar after the poor U.S. data.

By mid afternoon London time, the dollar was trading 0.4 percent lower at 84.98 yen — last week, the dollar fell to a 15-year low of 84.75 yen.

Elsewhere in Asia, the Shanghai Composite Index added 0.8 percent to 2,687.98, led by refiners and other energy companies. South Korea’s Kospi climbed 1 percent to 1,779.64 and Hong Kong’s Hang Seng index rose 0.2 percent to 21,068.15.

Australia’s S&P/ASX 200 recovered from early losses to gain 0.1 percent to 4,479.00, though sentiment was clouded by uncertainties over miner BHP Billiton Ltd.’s hostile $38.5 billion takeover bid for one of the world’s biggest fertilizer producers.

Benchmark crude for September delivery was down $1.04 at $74.38 in electronic trading on the New York Mercantile Exchange.