* U.S. shares recover, but growth outlook still uncertain
* Japan, Europe tumble after weak data from China, euro zone
* Dollar index lower, yen gains against dollar
By Ryan Vlastelica
NEW YORK, May 23 U.S. stocks and bonds were
volatile on Thursday, alternating between steep losses and
break-even levels as investors questioned the pace of economic
growth and when the U.S. Federal Reserve's stimulus program
Overseas shares ended sharply lower, closing before U.S.
equities staged a late-day recovery, pressured as weak data in
Europe and China underlined the uncertain growth outlook.
While U.S. shares tracked that weakness at multiple times
throughout the session, analysts said Wednesday's steep decline,
triggered by questions over Fed policy, may have been overdone,
allowing investors to seek bargains.
Fed chief Ben Bernanke on Wednesday broached the possibility
of reducing stimulus if U.S. economic conditions improve. While
Fed officials stressed that no action was likely for months,
investors are anxious about the timing of any change in monetary
policy, which is widely credited with fueling massive gains in
stocks and high-yield corporate bonds this year.
Bernanke's comment "was very benign and wasn't anything
unexpected; the sell-off came because we were looking for an
excuse to correct after the big moves this year," said Eric
Green, senior portfolio manager at Penn Capital Management in
The Dow Jones industrial average was up 30.34 points,
or 0.20 percent, at 15,337.51. The Standard & Poor's 500 Index
was down 0.98 points, or 0.06 percent, at 1,654.37. The
Nasdaq Composite Index was up 1.17 points, or 0.03
percent, at 3,464.47.
Thursday's measured rebound continued a recent trend of
investors using any equity market decline as a buying
opportunity. A rally in shares of Hewlett-Packard Co.,
which jumped 15 percent to $24.50 a day after it raised its
profit outlook, helped limit losses and keep the Dow in mildly
Still, overseas markets were sharply lower, driving
investors to safe-haven currencies. At the session peak, the yen
rose more than 2 percent against the dollar and the euro,
which both lost 1 percent against the Swiss franc
, also seen as a safe haven.
Chinese factory activity shrank for the first time in seven
months, adding to concerns that the world's second-biggest
economy had stalled. European factory sentiment dropped,
suggesting that the euro zone's economy was likely to contract
again in the second quarter.
Japanese shares were hit hardest in overnight action, with
the Nikkei losing 7.3 percent, its biggest one-day fall
in two years. European shares ended 2.1 percent lower
and MSCI's world equity index lost 1.2 percent.
"Even though we were overdue for a correction, the Chinese
data certainly didn't help things. If it proves to be part of a
trend, that's very concerning for the global economy," said
Green, who helps oversee $7 billion in funds.
U.S. light crude oil, which is closely tied to the
pace of economic growth, was flat after previously dropping more
than 1 percent. The U.S. dollar index fell 0.73 percent.
The Euro STOXX 50 Volatility Index, Europe's widely
used measure of investor risk aversion, surged nearly 15 percent
to a three-week high. The CBOE Volatility Index rose 2
Concern the Fed will wind down its stimulus initially took
its toll on bonds, but investors' sales of equities caused money
to flow into safer government debt, leaving yields on U.S.
Treasuries and German Bunds down from their highs. The benchmark
10-year U.S. Treasury note was up 3/32, the yield at
Investors expect the bond market will adjust to changing Fed
policy, and that suggests higher yields in the coming months.
Demand for riskier euro zone debt softened, although bonds
remained underpinned by expectations the European Central Bank
may yet ease monetary policy further. That would contrast with
any tightening by the Fed but follow a massive stimulus package
launched by the Bank of Japan.