Global recovery fears continue to shake markets; US housing data in focus once more

Global recovery fears weigh on markets

LONDON — World stock markets fell again Wednesday as worries over the global economic recovery continued to weigh on sentiment ahead of another closely-watched report on the U.S. housing market.

Global markets have been sliding for most of August as economic indicators from the U.S., Japan, China and elsewhere suggested global growth will slow in the second half, dimming earnings prospects for manufacturers and other exporters.

In Europe, the FTSE 100 index of leading British shares was down 43.49 points, or 0.8 percent, at 5,112.46 while Germany’s DAX fell 47.19 points, or 0.8 percent, to 5,888.25. The CAC-40 in France was 32.64 points, or 0.9 percent, lower at 3,458.47.

“Although the losses may appear to be modest in comparison to yesterday’s sell-off, the temptation to continue unwinding positions in light of the worsening economic outlook could well resurface,” said Ben Critchley, a sales trader at IG Index.

How the rest of the trading day pans out will likely hinge on Wall Street, where indexes were poised for further losses. Dow futures were down 33 points, or 0.3 percent, at 9,990 while the broader Standard & Poor’s 500 futures fell 3.7 points, or 0.4 percent, to 1,046.10.

And how Wall Street trades over the day will likely depend on the next set of housing data.

Figures Tuesday showing that existing home sales in the U.S. tanked in July to their lowest level in 15 years hit sentiment hard, and at one stage the Dow dropped below the 10,000 mark for the first time since early July.

“That big 10,000 level for the Dow will also be closely watched as a sustained break lower here could prove damaging psychologically, with traders on both sides of the Atlantic using it as another excuse to resume selling,” said Critchley.

Because the U.S. housing market was the catalyst behind the financial crisis and the ensuing global recession, its failure to stabilize is stoking renewed concerns about the sustainability of the U.S. recovery and reigniting talk that the Federal Reserve will have to pump more money into the economy to stave off a double-dip recession.

Following the existing sales disappointment on Tuesday, investors will be looking at the equivalent reading for new home sales during July. The consensus in the markets is they were unchanged at 330,000.

With U.S. economic data consistently underperforming market forecasts, there are mounting expectations that the Fed will have to do more to get the U.S. economy back on track, and all eyes will be on the central bank’s chairman Ben Bernanke on Friday when he outlines his latest thoughts in a speech at the annual Jackson Hole Economic Symposium.

Many analysts think that Bernanke will be compelled to introduce new measures, along with the Obama administration, which will help to restore confidence in the markets.

“Despite a sharp increase in depressing news and despite general confirmation that the US economy has now run out of steam we suspect that when the current downward run in the S&P and Dow has run its course in a few days, U.S. markets will begin to be buoyed up again on the back of expectation that both the Fed and government will take action to revive the flagging economy,” said Howard Wheeldon, senior strategist at BGC Partners.

Besides the U.S., Japan — which only grew by a quarterly rate of 0.1 percent in the second quarter — will suffer if the yen carries on rising.

On Tuesday, it hit a 15-year high against the dollar and a nine-year peak against the euro and the fear is that the country’s high-value exporters will find it increasingly difficult to compete in the international marketplace. Figures Wednesday showed that Japan’s exporters are already feeling the pinch — export growth slowed for the fifth consecutive month in July.

Those concerns clearly weighed on the Nikkei 225 stock average, which closed 149.75 points, or 1.7 percent, lower at a 16-month low of 8,845.39.

In a bid to curb the yen’s rise, Finance Minister Yoshihiko Noda told reporters Wednesday that Japan will “respond appropriately when necessary.” Japan has not intervened in the foreign exchange market since March 2004.

The threat of intervention seemed to dampen the yen’s rise — by mid afternoon London time, the dollar was 0.2 percent higher at 84.35 yen.

Meanwhile, the euro was supported by a survey showing Germany’s business confidence maintained its upward trend in August. The Ifo research institute said its closely watched business confidence index rose to 106.7 points from 106.2 points in July and that companies planned to hire more people despite an anticipated drop in the recent export boom that has spurred Europe’s biggest economy to surprisingly robust growth.

By mid afternoon London time, the euro was 0.1 percent higher at $1.2645.

Elsewhere in Asia, China’s benchmark Shanghai Composite Index fell 53.73 points, or 2 percent, to close at 2,596.58. Hong Kong’s Hang Seng dropped 23.73, or 0.1 percent, to 20,634.98.

Benchmark crude for October delivery was down 10 cents at $71.53 in electronic trading on the New York Mercantile Exchange. The contract fell $1.47 to settle at $71.63 on Tuesday.

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AP Business Writer Joe McDonald in Beijing contributed to this report.