Resurgent fears about U.S. economy hit stocks

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - Second thoughts about the U.S. economy's ability to recover soon hit global stocks on Monday, set Wall Street up for likely losses at the open and gave the dollar a boost.

Investors were shaken late last week by a dismal U.S. payrolls report which put a question mark over the recovery in the dominant economy, and thus across the globe.

"Doubts about the speed of global economic recovery are leading participants to question equity market valuations ahead of U.S. Q2 earnings season," Lloyds TSB economist Kenneth Broux said in a note.

U.S. corporate reporting begins in earnest next week, but there will be a foretaste on Wednesday when aluminum giant Alcoa (AA.N) reports.

Global stocks as measured by MSCI .MIWD00000PUS were down 0.9 percent and the emerging market sub-sector .MSCIEF lost more than 1.5 percent.

In Europe, the FTSEurofirst 300 .FTEU3 was at a seven-week low, dropping 1.6 percent, and earlier Japan's Nikkei average .N225 closed down 1.4 percent.

"There's a feeling corporate results are still going to be poor," said Justin Urquhart-Stewart, investment director at Seven Investment Management, in London. "People are asking where the growth is going to come from. They're looking at data and noticing it's still getting worse," though not at the same rate as before, he added.

G8 AHEAD

The dollar was generally stronger, rising half a percent against a basket of major currencies .DXY, although it fell against the Japanese yen which tends to gain when investors start worrying about economic growth.

The U.S. currency was down around three-quarters of a percent at 95.30 yen. The euro lost half a percent to 1.3893.

"Demand for the safer dollar and the yen is returning as investors are wondering whether there are any economies besides China that are strong enough to lead a global recovery," said Jun Kato, senior chief analyst at the Shinkin Central Bank Research Institute.

The market is also focused on a Group of Eight (G8) meeting on July 8-10 for any further debate on currency diversification.

China, which has floated the idea of looking for an alternative to the dollar as a global reserve currency, said the greenback would retain its global dominance for years to come, playing down the likelihood of any change in the current situation.

Euro zone government bond prices rose. The 10-year bond yield lost two basis points to 3.313 percent.