* World shares drop as earnings disappointment weighs
* U.S. stock markets shut due to approach of hurricane
* Brent oil falls below $109/bbl, East Coast refineries wind
* Dollar steadies vs yen, rises against euro
By Richard Hubbard
LONDON, Oct 29 World shares and commodities fell
on Monday as a recent run of downbeat corporate reports cast a
shadow over the economic growth outlook and markets awaited the
impact of a huge U.S. hurricane.
All U.S. stock markets were shut in the first
weather-related closure for 27 years, and they may close again
on Tuesday as forecasters say the storm could be the largest to
hit the mainland in American history.
U.S. stock index futures, which traded as usual, were down
around 0.3 to 0.6 percent in line with falls seen across major
European markets as renewed uncertainty over Spain and Greece
put the euro and peripheral bond markets under pressure.
The broader MSCI world equity index lost
0.25 percent to 327.85 points - on track for its worst monthly
performance since May as doubts grow over the effect of the
latest round of central bank efforts to boost activity.
Positive surprises, including third quarter U.S. and British
growth data and signs of stabilisation in China, have failed to
persuade investors that the world economy can achieve lasting
growth as major global companies have forecast weak revenues.
"Risk aversion is rising in all markets, and investors are
increasingly focusing on slow global economic growth," said
Eugen Weinberg, head of commodities research at Germany's
Commerzbank in Frankfurt.
The FTSE Eurofirst 300 index of top European shares
fell 0.4 percent to 1,092.75 points and the euro zone's
blue-chip Euro STOXX 50 index was down 0.8 percent
to 2,475.29 points.
EURO ZONE PROBLEMS
In Europe, the common currency slipped against the dollar on
rising uncertainty over whether Greece would agree to a deal on
austerity and with no sign of when Spain might request aid.
Spain's problems appear to be worsening after retail sales
in September were reported to be falling at their fastest pace
in at least six years following a rise in sales tax.
In Greece, international lenders are refusing to make any
further concessions to the government over new labour laws,
stalling a deal to release desperately needed funds from the
nation's bailout deal.
"Greece has come back to the radar and along with Spain, it
poses a slight negative for the euro," said Jeremy Stretch, head
of currency strategy at CIBC World Markets.
The euro was down 0.25 percent at $1.2902, close to
Friday's two-week low of $1.2882, with volumes expected to taper
off as traders in New York stay at home.
Italian political risks were also rising again after former
premier Silvio Berlusconi threatened to bring down the
government of Mario Monti.
"Berlusconi's rant perhaps highlights the less than stable
nature of Italian politics and reinjects some degree of
political risk into (Italian government bonds)," said Richard
McGuire, rate strategist at Rabobank.
Italian 10-year government debt yields were up
9 basis points at 5.0 percent, with the bonds underperforming
even their Spanish counterparts, where yields were
4.5 basis points higher at 5.66 percent.
German government bonds also hit two-week highs, sending
10-year yields down 5 basis points to 1.48
percent, as the weakness on equity markets added to the demand
for less risky assets.
"We've got very reduced liquidity, with the U.S. deemed to
be shut for the rest of the day so people are biding their
time," one fixed income trader noted.
The dollar steadied at 79.65 yen, off a four-month
high of 80.38 touched on Friday, before a Bank of Japan monetary
policy decision on Tuesday. Markets expect the BOJ to take
further easing measures.
If the BOJ does ease, it will be the first time the central
bank has acted for two consecutive months since 2003.
In oil markets, all eyes were on Hurricane Sandy, which has
forced the closure of several big refineries along the east
coast of the United States.
"With refineries cutting runs, we're likely to see a
build-up in crude stocks which could be driving bearish prices
at the moment," said Michael Creed, an economist at National
Australia Bank in Melbourne.
Brent crude oil initially fell $1.04 to $108.51 a
barrel on the possible impact of the hurricane, before
recovering to be slightly firmer at around $109.93. U.S. crude
was down 35 cents at $85.93.
Oil analysts say Sandy is likely to depress U.S. oil
consumption as commuting and road transport fall and flights to
and from East Coast airports are cancelled.
Commodities were also under pressure from speculation that
rising evidence of weak corporate earnings around the world mean
demand would slow. London copper fell 1.5 percent to
$7,705 a tonne.