GLOBAL MARKETS-Shares, euro tumble on economic concerns, Italy vote

Thu Feb 21, 2013 5:07pm EST

* Euro zone PMI deals blow to economic recovery hopes
    * Italian elections cast doubt on reform program
    * U.S. economic data suggest Fed easing still needed
    * Brent crude hits three-week low


    By Angela Moon
    NEW YORK, Feb 21 (Reuters) - Major stock markets fell for a
second day and the euro slid to a six-week low against the U.S.
dollar on Thursday after data showed weak economic growth in
both Europe and the United States.
    Oil prices also slumped, with Brent crude falling to a
three-week low, after a survey of euro zone business conditions
dealt a blow to hopes the region might soon emerge from
recession.
    In contrast, the dollar rose to a 5-1/2-month high against a
basket of currencies, a day after minutes from the Federal
Reserve's last meeting bolstered expectations the central bank
may pull back from its bond-buying program sooner rather than
later.
    U.S. Treasuries prices also rose as renewed worries about
Europe's economic recovery and sluggish domestic jobs and
business conditions led investors to buy less risky government
debt.
    In the United States, a raft of economic data, from claims
for jobless aid to factory activity and consumer price
inflation, pointed to slow economic growth and supported the
argument for the Federal Reserve to maintain its monetary 
stimulus.
    In Europe, business activity indexes dealt a blow to hopes
the euro zone might emerge from recession soon, showing the
downturn across the region's businesses unexpectedly grew worse
this month.
    "The PMI numbers out of Europe were really a blow to the
market," said Jack De Gan, chief investment officer at Harbor
Advisory in Portsmouth, New Hampshire. "The market was expecting
signs that recovery is still there, but the numbers just
highlighted that the euro-zone problem is still persistent."
    By market close in New York, the MSCI world equity index
 was down 1.3 percent, its biggest daily loss so
far this year.
    U.S. stocks fell for a second straight day and the S&P 500
posted its worst two-day loss since November after reports cast
doubt over the health of the U.S. and euro-zone economies.    
    But a late-day rally helped stocks erase some of their
losses, with most of the pullback concentrated in the
technology-heavy Nasdaq. The move suggested investors were still
willing to buy on dips even after the sharp losses in the last
session.
    After the regular trading session on Wall Street, shares of 
Hewlett-Packard Co jumped more than 7 percent from their
 close at $16.70. The world's No. 1 PC maker reported quarterly
results that beat Wall Street expectations and also gave an
outlook that came in higher than Wall Street expected. 
    The Dow Jones industrial average closed down 46.92
points, or 0.34 percent, at 13,880.62. The Standard & Poor's 500
Index fell 9.53 points, or 0.63 percent, at 1,502.42. The
Nasdaq Composite Index  was down 32.92 points, or 1.04
percent, at 3,131.49.
    
    FED FACTOR
    The Fed is currently buying $85 billion in bonds per month
and has said it would keep up the purchases until the labor
market outlook improves substantially, although officials are
increasingly divided over the wisdom of that course. 
    "The economy is in a holding pattern. It's not going to
strengthen sufficiently to justify an end of the current
program," said Millan Mulraine, senior economist at TD
Securities in New York.  
    On Wednesday, minutes from the Federal Reserve's most recent
meeting had suggested the central bank may slow or stop buying
bonds sooner than expected, resulting in U.S. stocks suffering
their biggest one-day decline since Nov. 14. 
    In Europe, shares closed sharply lower after weak economic
data and ahead of this weekend's Italian elections, which may
call into question the country's economic reform program.
    Europe's Eurofirst 300 index shed 1.5 percent to
close at 1,151.61. The blue chip Euro STOXX 50 index 
index fell 2.3 percent to 2,580,20, a new low for 2013.
    
 
    
    EURO SLIDES AGAINST DOLLAR AND YEN
    The euro fell to a six-week low against the dollar and a
three-week trough against the yen, pressured by disappointing
euro zone economic data and by uncertainty ahead of Italy's
election.
    The downturn in the euro zone worsened unexpectedly this
month, especially in France, surveys showed on Thursday, keeping
alive chances of an interest rate cut by the European Central
Bank in coming months. 
    Concerns that a fragmented parliament after Italy's national
election could trigger a sell-off in the peripheral euro zone
bond market also weighed on the euro.
    Nichi Vendola, leader of the Left Ecology Freedom party
(SEL) and front runner in polls for Italy's election, said the
country should seek revisions of European Union budget rules. 
    That raised fears that Vendola will push a center-left
government too far to the left and prevent a coalition agreement
with outgoing Prime Minister Mario Monti, which is seen as the
most market-friendly election outcome.
    The euro fell to $1.3160 on Reuters data, its lowest
since Jan. 10, and well below a 15-month peak of $1.3711 reached
on Feb. 1. The euro last traded at $1.3182, down 0.7 percent.
    Against the yen, the euro fell to 122.23 yen, its
weakest since late January. It was last at 122.78, down 1.2
percent.
    The dollar index, which measures the greenback versus
a basket of currencies, rose to a session peak of 81.508, the
highest since early September, before easing slightly to trade
at 81.397, up 0.4 percent on the day.
    "There will be less dilution of the value of the U.S.
dollar, especially relative to the yen and maybe sterling," said
Tatjana Michel, director of currency analysis at Charles Schwab
in San Francisco.
    Prices on 30-year U.S. Treasury bonds rose more than one
point as renewed economic worries intensified selling in stocks
and risky assets and purchases of safe-haven bonds.
    Benchmark 10-year Treasury notes were 8/32
higher in price to yield 1.983 percent, down 2.7 basis points
from Wednesday but still well within the 1.93 percent to 2.06
percent range that has held sway for over three weeks.
    Brent April crude fell $2.07, or 1.79 percent, to
settle at $113.53 a barrel, having traded from $113.32 to
$115.31.
    U.S. April crude fell $2.25 to $92.96 a barrel.
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