GLOBAL MARKETS-Weak U.S. data sends dollar, equities lower

Mon Feb 3, 2014 4:12pm EST

* Weaker-than-expected ISM report adds to emerging market concerns

* S&P 500 on track for biggest single-day fall since June

* U.S. Treasury yields at lows last seen in November

* Dollar slips on weak ISM reading

By Herbert Lash

NEW YORK, Feb 3 (Reuters) - A weaker-than-expected report on U.S. factory activity pushed global equity markets and the dollar lower on Monday, while keeping the pressure on currencies and other assets in emerging markets.

U.S. stock indexes dropped about 2 percent, the dollar fell to its lowest against the Japanese yen since late November and the yield on the benchmark 10-year U.S. Treasury note fell to its lowest since the beginning of November on the ISM report.

The benchmark S&P 500 index was headed toward its biggest single-day percentage decline since June.

Emerging market stocks extended a two-week selloff as weak Chinese manufacturing and services data also weighed, while the Turkish lira and South African rand weakened after policymakers poured cold water on expectations of higher local interest rates.

MSCI's all-country world equity index fell 1.36 percent while the pan-European FTSEurofirst 300 index of leading regional shares closed down 1.4 percent.

MSCI's emerging markets index fell 1.2 percent to its lowest since August, a rate that was less than the fall in developed markets. Still, the index is down 7.7 percent so far in 2014, compared with a 5.7 percent drop in the S&P 500.

U.S. manufacturing grew at a substantially slower pace in January as new order growth plunged the most in 33 years, driving overall factory activity to an eight-month low, the Institute for Supply Management said.

ISM's index of U.S. factory activity fell to 51.3 last month - its lowest since May - from a revised 56.5 in December. The reading was well below a median forecast of 56 in a Reuters poll of economists. Readings above 50 indicate expansion.

The price of safe-haven gold rose about 1.5 percent as the ISM reading rattled investors, even as data showed European manufacturers had a solid start to the year.

Slower growth in the Chinese goods-producing sectors, coupled with the U.S. data, raised concern about the health of the global economy.

"The data was very weak across the board - it's hard to find any good news in there. It looks like a general slowdown, though you don't know how much of this is weather-related," said Paul Zemsky, head of asset allocation at ING Investment Management in New York, referring to the ISM report.

"Combine that with the fact emerging market currencies continue to sell off, and things don't look too good for the market now," he said. "Somewhere between now and 1,700 (on the S&P) there's a big buying opportunity, but people need to see some stability in emerging currencies."

The Dow Jones industrial average fell 299.75 points, or 1.91 percent, to 15,399.1. The S&P 500 lost 38.3 points, or 2.15 percent, to 1,744.29 and the Nasdaq Composite dropped 104.178 points, or 2.54 percent, to 3,999.699.

The dollar index, a measure of the greenback versus basket of currencies, fell 0.34 percent to 81.029 and the euro gained 0.35 percent against the dollar to 1.332. The dollar fell 1.05 percent to 100.96 yen.

U.S. Treasuries yields fell to their lowest since early November, with the 10-year note rising 23/32 in price, pushing its yield down to 2.5824 percent, the lowest since the beginning of November.

Dan Morris, global Investment strategist at TIAA-CREF in New York, where he helps oversee $564 billion in assets, said he was telling clients to keep calm and stay invested, as the decline in U.S. markets was not unexpected.

"I don't think anyone is too shocked this is happening, it was more a question of when and how significant. You were going to have a soft patch," Morris said.

U.S. stocks are likely to post high single-digit returns this year, with forward price-to-earnings ratios of about 15, slightly higher than the past quarter century, he said. But China, because of its size, could be a concern, he added.

Brazil's Bovespa index fell 3.1 percent and its currency, the real, fell. Mexico's bolsa index fell just 0.3 percent.

Gold for April delivery rose 1.5 percent to $1,257.7 an ounce.

Brent crude oil dropped to a two-week low below $106 a barrel as the weak factory data from China stoked concerns about demand, but violence in Iraq and Syria limited the fall.

Brent slipped 36 cents to settled at $106.04 a barrel. U.S. oil fell $1.06 to $96.43.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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