* U.S. manufacturing shrinks for third straight month
* ECB bond-buying hopes cut Spanish and Italian bond yields
* U.S. markets reopen after long holiday weekend
By Luciana Lopez
NEW YORK, Sept 4 Global stocks slid on Tuesday
as data showed U.S. manufacturing shrank at the sharpest clip in
more than three years last month, while expectations the
European Central Bank could buy more bonds chipped away at
Spanish and Italian yields.
A separate report showing U.S. construction spending fell in
July by the most in a year provided additional fuel to hopes for
more Federal Reserve stimulus, with investors looking forward to
Friday's August U.S. employment data.
Should that report also prove weak, the Fed could embark on
another round of bond buying, or quantitative easing, to prop up
the world's biggest economy.
Those expectations got a boost last week when Fed Chairman
Ben Bernanke left the door wide open to a further easing of
monetary policy, saying the stagnation in the U.S. labor market
was a "grave concern," though he stopped short of immediate
The Dow Jones industrial average fell 92.80 points,
or 0.71 percent, at 12,998.04. The Standard & Poor's 500 Index
was down 7.74 points, or 0.55 percent, at 1,398.84. The
Nasdaq Composite Index was down 16.73 points, or 0.55
percent, at 3,050.24.
"What people saw with today's U.S. ISM and the manufacturing
data in Asia and Europe yesterday is that the global economy is
still slowing down. In particular, cyclical stocks are pretty
weak today," said Peter Boockvar, equity strategist at Miller
Tabak & Co in New York.
The euro also slid against the dollar, dropping to $1.2561
after having risen as high as $1.2627 earlier in the
Investors were also eyeing possible action across the
Atlantic from the European Central Bank, with hopes for more
bond buys from the ECB helping drive Spanish and Italian bond
yields to multi-week lows.
Spanish two-year yields dropped to 3.16
percent, the lowest since early April, while their Italian
counterparts fell to 2.43 percent, the lowest since
The benchmark 10-year U.S. Treasury note was
down 6/32, with the yield at 1.5671 percent.
The ECB is expected to unveil a new debt-purchasing plan to
tackle the region's debt crisis at a policy meeting o n T hursday,
when it may also cut interest rates as the 17-nation euro area
heads toward a recession.
Mario Draghi, the ECB's president, told European lawmakers
o n M onday that buying short-term sovereign debt did not breach
any European Union rules, which investors took as a sign the
bank would resume purchases of short-dated Spanish and Italian
"Markets are taking a bit of confidence from Draghi, who
apparently indicated that purchases of up to three years
maturity wouldn't be in contravention of EU policies on
financing of sovereigns," said Brian Barry, a strategist at
Still, European equity investors have turned more cautious
over the impact of the ECB plan, having enjoyed a strong rally
since Draghi pledged on July 26 to do "whatever it takes" to
protect the euro from the crisis.
The weak U.S. data also knocked European shares, adding to
The FTSEurofirst 300 ended down 1.1 percent at
1,079.81, albeit in thin trading volume of just 62 percent of
the 90-day daily average.
"If the ECB disappoints, the reaction would be on the
negative side. But I don't expect a dramatic sell-off as focus
will shift to other events," said Christian Stocker, equity
strategist at UniCredit.
The MSCI world equity index, which gained
late last week on renewed hopes of more monetary stimulus by the
Federal Reserve, was down 0.72 percent at 320.39.
Oil prices fell below $115 per barrel on Tuesday as renewed
fears about weaker demand outweighed hopes of further stimulus
measures from central banks in the United States and Europe.
Front-month Brent crude futures were down $1.08 to
$114.70 a barrel. U.S. crude futures were down 1.22 cents
to $95.25 a barrel from Friday's settlement.