GLOBAL MARKETS-Stocks, oil fall on weak outlook for global economy

Mon Oct 8, 2012 9:22am EDT

* World shares fall on global growth concerns

* U.S. earnings season set to put fresh focus on slowdown

* Oil dips below $112 as World Bank cuts Asian growth outlook

* Euro edges down 0.5 pct to $1.2966

By Richard Hubbard

LONDON, Oct 8 (Reuters) - Stocks and oil prices fell on Monday after the World Bank cut its growth forecast for China, adding to concerns about the outlook for the global economy and corporate earnings.

Warnings from large multinationals such as FedEx Corp and Hewlett-Packard Co, have made investors cautious ahead of the earnings season, which starts on Tuesday.

The World Bank cut its growth forecast for East Asia, including for China, undoing the positive sentiment that followed a drop in the U.S. unemployment rate.

"The World Bank's downgrade is another indication of the various concerns ... which are likely to be reflected in the earnings results," Mike Lenhoff, chief strategist at Brewin Dolphin, said.

European shares were down around 1 percent in morning trade, while Asian shares outside Japan fell 0.9 percent. Tokyo markets were shut for a holiday.

U.S. stock index futures were also pointing to a lower open on Wall Street, with the S&P 500 futures down 0.35 percent. Columbus Day celebrations in United States on Monday were likely to limit trading, although stock markets are open.

The MSCI world equity index was down 0.6 percent at 335.4 points.

The Standard & Poor's 500 index gained 5.8 percent over the third quarter due to the central bank action but earnings for the period are forecast to fall 2.4 percent from the year-ago quarter.

DARKENING OUTLOOK

China's role as the last major growth engine in the world economy amplified the impact of the World Bank's forecasts in foreign exchange and commodity markets.

The dollar was up 0.3 percent against a basket of currencies, with its index at 79.62. However, it fell against the yen, erasing some of the gains made on Friday after a drop in the U.S> unemployment rate

The higher-yielding Australian dollar, which is particularly sensitive to concerns about China given the countries' close trading links, dropped to near a three-month at $1.0186.

Fears that slower economic growth would curb oil demand sent Brent crude for November delivery down 82 cents to $111.20 a barrel, and the gold price edged down 0.1 percent to $1,770 an ounce.

"The World Bank's pessimistic outlook for East Asian economies and warning that China's economic slump could deteriorate further ... had a hand in pushing prices lower," said David Wech, head of market analysis at Vienna-based consultancy JBC Energy.

EUROPE UNCERTAINTY WEIGHS

In Europe fresh data showed investor sentiment had improved for a second consecutive month in October thanks largely to the monetary easing by central banks and Germany's backing for a new permanent bailout fund for the European currency bloc.

German export data for August also surprised by jumping 2.4 percent month-on-month, far outperforming expectations for a drop of 0.5 percent in a Reuters poll of 17 economists.

However, uncertainty over the next steps in solving the region's debt crisis, coupled with the weak economic outlook weighed on the euro which was 0.5 percent lower at $1.2960 , and down from Friday's two-week high of $1.3072.

European investors were focused on a meeting of euro zone finance ministers who will formally launch the new bailout fund, the European Stability Mechanism. They are also expected to discuss the problems facing Spain and Greece.

The market was also bracing for German Chancellor Angela Merkel's visit to Athens on Tuesday. Finance Minister Wolfgang Schaeuble on Sunday said that Merkel's trip to Greece did not necessarily mean Athens would receive the next tranche of aid under its bailout.

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