GLOBAL MARKETS-Stocks down on growth fears; dollar falls

Thu Jun 2, 2011 8:06am EDT

* World stocks trim losses slightly; down 0.6 pct

* Oil bounces amid dollar weakness; more data awaited

* Dollar index hits 1-mth lows; euro up 1 pct to dollar

* Treasuries, Bunds ease; 10-yr US yield stays under 3 pct

By Sujata Rao

LONDON, June 2 (Reuters) - World stocks extended losses on Thursday and the dollar fell to a one-month low against major currencies after a run of dismal economic data pointed to a faltering recovery in the United States.

Equities pared some early losses, however, as U.S. stock futures pointed to a higher opening for Wall Street a day after the biggest one-day fall in almost 10 months for the benchmark S&P 500 index .SPX. U.S. Treasuries too dipped slightly but yields stayed near six-month lows hit on Wednesday.

Investors are likely to keep to the sidelines ahead of key U.S. jobs data due on Friday but their appetite for risk-taking has already been hit by lacklustre data from both emerging and developed economies.

U.S. data on Wednesday showed private sector job creation was way below forecasts in April, while factory growth worldwide has been slowing, surveys showed earlier.

"The outlook is darkening. It must be worrying for the global economic authorities. It has cost about $10 trillion worldwide to create the impression of an economic revival and we have nothing to show for it," said Jeremy Batstone-Carr, strategist at Charles Stanley.

He was referring to the enormous amounts of cash stimulus central banks around the world pumped into their economies to boost growth after the 2008 financial crisis.

With the U.S. Federal Reserve set to wrap up its $600 billion bond buying programme later this month, signals of more economic weakness ahead are especially worrying for riskier assets such as equities, high-yield bonds and emerging markets.

By 1055 GMT, the MSCI index of global equities had fallen 0.6 percent .MIWD00000PUS, slightly trimming earlier losses. The index fell 1.2 percent on Wednesday, exacerbated by a 2.3 percent tumble in the S&P 500.

Emerging equities shed 1 percent .MSCIEF.

European stocks also fell. The FTSEurofirst 300 .FTEU3 index of top European shares was down 0.7 percent, after a one percent tumble on Wednesday.

Mining and energy firms were hardest hit as investors fretted that global commodity demand would weaken. Stocks such as Antofagasta (ANTO.L) and Xstrata XTA.L fell between 2.4 percent and 2.8 percent

Britain's FTSE 100 .FTSE, Germany's DAX .GDAXI and France's CAC40 .FCHI fell between 1 and 1.3 percent.

Earlier, Japanese shares fell 1.7 percent .N225, hit also by the political backdrop as Prime Minister Naoto Kan said he would resign once he gets the nuclear crisis that followed March's devastating earthquake and tsunami under control.

China closed 1.4 percent down at a four-month low .SSEC.

Markets may get some respite from New York however, as U.S. stock futures inched higher.

Futures for the S&P 500 SPc1 and Dow Jones DJc1 rose 0.3 percent while Nasdaq 100 NDc1 futures were up 0.45 percent. Investors are awaiting more U.S. jobs and factory data at 1230 GMT as well as details of sales at chain stores last month.

DOLLAR, BONDS EASE; OIL IN BOUNCE

U.S. non-farm payrolls data, seen as the best barometer of the world's largest economy, will offer direction to markets on Friday, with analysts slashing their estimates for job creation.

The median forecast of U.S. payrolls growth in May in a Reuters poll was revised down to 150,000 from the prior forecast of 180,000 after Wednesday's poor jobs data [ID:nN01187478].

A weak number will increase pressure on the U.S. dollar, which fell to a one-month low versus a basket of currencies .DXY and hovered near a record low to the Swiss franc CHF=

Analysts say disappointing nonfarm payrolls data will fuel speculation about the need for more monetary stimulus after the Fed's second quantitative easing round (QE2) ends in June.

"We're in a stage where the dollar will be soft if people become concerned about weak U.S. data, as QE3 could become a by-product of that," said Ankita Dudani, currency strategist at RBS in London.

The euro jumped 1 percent against the dollar to a one-month high EUR= on optimism that European officials will reach an agreement on how to help Greece repay its debt.

The growth unease has seen investors pile into safe-haven U.S. and German bonds, with U.S. 10-year yields falling under 3 percent on Wednesday for the first time since last December.

On Thursday, Treasuries dipped slightly as investors cashed in on recent gains, pushing the benchmark 10-year yield US10YT=RR 3.1 basis points higher. But it stayed under 3 percent and is unlikely to rise much in the current environment.

German Bunds too retreated from four-month highs hit after a strong Spanish bond sale showed some peripheral euro zone states are riding out the current bout of market stress.

The sale came a day after a three-notch downgrade for Greece from Moody's, relegating it deep into junk territory.

"We've probably seen the peak (in Bunds) for today. People have been playing the Greek story and buying bunds on negative news but how much more bad news can you get from Greece?" said Charles Berry, a trader at Landesbank Baden-Wuerttemberg.

On commodity markets, metals extended losses, with copper, a key component in power and construction, hitting a weekly low before recovering slightly.

But Brent oil bounced 60 cents to $115.3 a barrel and U.S. futures gained 17 cents, rising above $100. A weak greenback makes dollar-priced commodities cheaper for buyers holding other currencies. Growth fears are likely to cap crude gains, however. Doubts about the U.S. recovery have deepened after data last week showed a 3.5 million-barrel jump in U.S. crude stockpiles, according to an American Petroleum Industry report.

More inventory data is due at 1500 GMT.

Traders are also pricing in the possibility of an output rise next week by the OPEC group of oil producing nations. (Additional reporting by Brian Gorman and Naomi Tajitsu in London; Editing by Catherine Evans)

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