Weak US data shakes markets once again ahead of another housing report

Weak US data shakes markets once again

LONDON — World stock markets fell further Wednesday as another batch of disappointing U.S. economic data reinforced fears about the strenth of the global economic recovery.

In Europe, the FTSE 100 index of leading British shares closed down 46.55 points, or 0.9 percent, at 5,109.40 while Germany’s DAX fell 35.94 points, or 0.6 percent, to 5,899.50. The CAC-40 in France ended 40.92 points, or 1.2 percent, lower at 3,450.19.

On Wall Street, the Dow Jones industrial average was down 14.94 points, or 0.2 percent, at 10,025.51 around midday New York time, with the 10,000 mark proving to be a difficult level to break below for the second day running. Meanwhile the broader Standard & Poor’s 500 index fell 2.95 points, or 0.3 percent, to 1,048.92.

Fragile sentiment turned decidedly negative after U.S. data came in — once again — worse than anticipated.

“Yet more poor data has kept markets on their downward spiral,” said Phil Gillett, a trader at Spreadex.

The Commerce Department said the sale of big-ticket items, such as aircraft, rose by only 0.3 percent in July from the previous month, way down on expectations of a 3 percent monthly rise.

Though big swings in commercial aircraft and defense sales make such statistics particularly volatile, investors were spooked about how paltry the monthly increase was.

Another soft U.S. housing report kept the mood negative. The Commerce Department reported that the sale of new homes dropped 12.4 percent in July to an annual sales pace of 276,600, the lowest since records began in 1963.

The new home sales data came a day after an equivalent series for existing home sales pushed the Dow below 10,000 for the first time since early July.

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.

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. 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 Bernanke will have to introduce new measures to restore confidence in the markets and to prevent a double-dip recession and a possible dangerous spiral of falling prices, or deflation.

“The market will want to see what Bernanke says on Friday on all of this — remember he wrote the textbook on the dangers of Japan-style deflation,” said Neil MacKinnon, global macro strategist at VTB Capital.

Meanwhile, Japan itself faces the similar problems as the U.S., but many of its problems stem from the seemingly daily rise in the value of the yen.

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 Japanese export growth slowed for the fifth consecutive month in July.

Those concerns pushed the Nikkei 225 index to close 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 said 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 late afternoon London time, the dollar was 0.5 percent higher at 84.60 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 business confidence index rose to 106.7 points from 106.2 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.

The strong Ifo more than compensated for Tuesday’s credit rating downgrade of Ireland from Standard & Poor’s. The agency lowered its rating on the country by one notch to AA- as the projected cost to the Irish government of supporting the financial sector has risen above previous estimates.

Neil MacKinnon, global macro strategist at VTB Capital, said the move was “not a surprise — draconian budget cuts have resulted in a 20 percent contraction in the Irish economy accentuated by the collapse in the property market and the reckless lending of Irish banks.”

By late afternoon London time, the euro was 0.2 percent higher at $1.2655.

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

Benchmark crude for October delivery was down 34 cents at $71.29 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.