Global shares, euro tumble on economic concerns, Italy vote

NEW YORK Thu Feb 21, 2013 5:09pm EST

1 of 7. Traders work on the floor of the New York Stock Exchange, January 18, 2013.

Credit: Reuters/Brendan McDermid

NEW YORK (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 .MIWD00000PUS 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 (HPQ.N) 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 .DJI closed down 46.92 points, or 0.34 percent, at 13,880.62. The Standard & Poor's 500 Index .SPX fell 9.53 points, or 0.63 percent, at 1,502.42. The Nasdaq Composite Index .IXIC 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 November 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 .FTEU3 shed 1.5 percent to close at 1,151.61. The blue chip Euro STOXX 50 index .STOXX50E 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 January 10, and well below a 15-month peak of $1.3711 reached on February 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 .DXY, 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.

(Reporting By Angela Moon; Editing by Leslie Adler, Clive McKeef and Dan Grebler)

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Comments (3)
AdamSmith wrote:
The Fed’s QE is the biggest boon to the wealthy ever witnessed by modern markets.

The Fed has been buying up, from the wealthy, every worthless note the wealthy had been stuck with. The Fed has been buying everything, you name it. Worthless junk that nobody else would buy, the Fed has been buying it for top dollar, taking it off the hands of the wealthy.

The wealthy can barely contain themselves at their good fortune. Who would have thought they could get rid of those worthless pieces of paper? Yet, the Fed has now paid them roughly $1.5 trillion in cold, hard cash.

The wealthy, who had expected to lose everything, are now made richer than ever. The Fed are very happy to accomodate them, and get invited to the country-club parties. And Obama, too, yearns for the invitations to the country-club parties, so he’s all in with the scheme too.

Once again in life, the wealthy win, effortlessly. And the common man is ground into the floor.

QE is a far greater crime than TARP, and far more subtle for the average citizen to grasp.

Feb 20, 2013 11:02pm EST  --  Report as abuse
LoveJoyOne wrote:
AdamSmith,

I can’t disagree with much of what you said. The rich have been major beneficiaries of the Fed’s actions to stave off a huge depression.

Still, I’m not particularly surprised to see the wealthy profit. Hasn’t that always been the case? The powerful mega upper class is mega connected. The mega rich know exactly what will happen before it happens and will always have a step or two on everyone else.

It almost looks like a conspiracy.

Feb 21, 2013 4:01am EST  --  Report as abuse
Whittier5 wrote:
No surprise. You can’t starve your way to a vibrant Economy.

Feb 23, 2013 3:39pm EST  --  Report as abuse
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