GLOBAL MARKETS-Growth fears hit stocks, investors eye Fed and Draghi

Wed Jul 9, 2014 8:02am EDT

By Jamie McGeever
    LONDON, July 9 (Reuters) - World stocks fell on Wednesday as
a decline in Chinese inflation and weaker European industrial
data combined to suggest global growth may be slowing, eclipsing
a positive start to the U.S. earnings season.
    The mining company Alcoa Inc reported results after
Wall Street closed that beat analysts' expectations, but that
was not enough to help European equities recover after they fell
the most in three months on Tuesday. 
    Major currencies and bond markets were steady before a
speech by European Central Bank President Mario Draghi and the
release of the U.S. Federal Reserve's minutes of its latest
meeting.
    "Growth continues to be a concern in the developed world,"
said Mark Burgess, chief investment officer at Threadneedle
Investments in London. "I don't think the developed world can
handle short, aggressive interest rate rises. The last thing
anyone wants to do is stifle growth."
    Overnight, China's consumer price index rose 2.3 percent in
June from a year earlier, shy of the consensus forecast of 2.4
percent, and a sign economic activity may be cooling. 
    At midday in London, the FTSEuroFirst 300 index of leading
European shares was down 0.3 percent at 1,359 points. 
Germany's DAX was down 0.1 percent at at 9,766 points 
and France's CAC 40 was down 0.2 percent at 4,333  points
.
    Britain's FTSE 100 was down 0.5 percent at 6,703 points
, hit hard by the insurance sector. Admiral Group fell 6
percent after issuing a trading statement update, and
Aviva was down 3.7 percent 
    Portuguese stocks lagged their European peers, falling 2.2 
percent on concerns about the financial health of one
of the country's largest financial groups, Espirito Santo
Financial Group. ESFG is the main shareholder of
Portugal's largest listed bank, Banco Espirito Santo. 
    The Group's shares were down 11 percent.
            
    DRAGHI RETURNS TO LONDON
    Portguese bonds also underperformed, with the 10-year yield
spiking to a six-week high just shy of 3.9 percent,
while Greek yields ticked up to a one-month high of 6.17 percent
 as the country prepared to issue a new three-year
bond. 
    Major bond markets were stronger, however, before the Fed
minutes and Draghi's appearance in London, where he delivered
his famous speech almost exactly two years ago pledging to do
"whatever it takes" to save the euro.
    The benchmark 10-year Treasury yield was
unchanged at 2.565 percent. The yield on Germany's Bund slipped
to a fresh one-year low of 1.21 percent.
    In currency markets, the euro was unchanged at $1.3607
, while the dollar inched up against the yen to 101.66 yen
.
    The dollar has fallen back below a key long-term technical
indicator against the yen this week. That's the 200-day moving
average, which on Wednesday was 101.83 yen, suggesting it may
not strengthen much - if at all - in the coming days and weeks.
    Upbeat June U.S. employment data last week prompted some
Wall Street economists to predict the Fed would raise interest
rates earlier than previously thought. But yields have fallen
since then, with investors cautious about the strength of the
recovery.
    Disappointing German economic data on Tuesday kept the
benchmark Bund yield anchored, and later on Wednesday investors
will look to Draghi for signs the ECB could ease policy further
to support the euro zone economy.
    "If the ECB embarks on a round of assets purchases, it could
push peripheral yields down another notch as investors view
these assets as being backstopped by the central bank," Rabobank
said in a note to clients.  
    In commodities trading, Brent oil fell 0.2 percent
to $108.73 per barrel. It has lost 3.5 percent so far this
month.
    Gold was up 0.4 percent at $1,324.00 an ounce as
markets waited for the Fed minutes.

 (Reporting by Jamie McGeever, additional reporting by Sudip
Kar-Gupta; Editing by Larry King; To read Reuters Global
Investing Blog click here;
 for the MacroScope Blog click on blogs.reuters.com/macroscope;
 for Hedge Fund Blog Hub click on blogs.reuters.com/hedgehub)
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