| NEW YORK
NEW YORK Crude oil and metals prices fell sharply on Wednesday, driving world stocks lower, as disappointing U.S. economic data and concerns about the slowdown of the Chinese economy prompted investors to scale back risky positions.
The U.S. dollar hit a three-year low against major currencies and Wall Street stocks fell as much as 1.0 percent after a batch of disappointing U.S. economic data for April -- including a surprise slowdown in the services sector and less hiring by the private sector.
The euro hit a 17-month high against the dollar with investors interpreting the economic data as the latest sign that the Federal Reserve will maintain its current monetary stimulus while euro zone rates go higher.
Signs of weakness in the U.S. economic recovery mounted as reports on Wednesday showed a sharp slowdown in the vast services sector and less hiring by private companies in April.
Worries about rising fuel and commodity prices showed up in the latest gauge of the vast U.S. services sector, which grew at its slowest pace since August 2010, according to the Institute for Supply Management.
On the labor front, the ADP Employer Services report showed U.S. private payrolls rose by 179,000 jobs last month, less than economists' expectations for a gain of 198,000.
"This appears to be a bump in the road for the recovery if indeed the pace of job recovery has slowed," said Michael Woolfolk, a strategist at BNY Mellon. "It certainly feeds into the notion that the Fed won't be hiking interest rates soon."
Economists expressed disappointment ahead of a key U.S. labor market report on Friday that is also expected to show payroll growth eased last month.
"Friday's jobs report will be important," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut. "If we get (200,000 job gains) or above, it will reinforce the idea the economy continues to expand."
A Reuters poll forecast nonfarm job gains of 186,000 for the month of April and private payroll gains of 200,000.
Concerns about the global economic recovery were on the rise as investors anticipated further tightening measures in China, the world's top consumer of commodities.
In Hanoi, China's Vice Finance Minister Li Yong said the government will continue to use measures such as higher interest rates and bank deposit requirements to curb inflation.
U.S. crude oil closed down 1.63 percent at $109.24 a barrel, weighed down by concerns over China and a larger-than-forecast increase in U.S. crude stockpiles.<EIA/S>
However, crude is still near a 31-month peak, keeping alive inflation worries.
Copper prices dropped to a seven-week low, with three-month contracts on the London Metal Exchange hitting a session low of $9,135 per ton, the lowest since March 15, compared with $9,350 at the close on Tuesday.
"General risk appetite is under pressure at the moment. There are some fears over China -- will they tighten too much?" said Arne Lohmann Rasmussen, an analyst with Danske bank.
Silver fell more than 4.0 percent in a third straight session of sharp losses, also dragging down gold, after the Wall Street Journal reported that billionaire investor George Soros has been selling silver and gold in the past month or so.
The U.S. Dollar Index .DXY, which measures the greenback against a basket of key currencies, fell to a three-year low after the U.S. data. It later recovered slightly to trade 0.25 percent lower.
The euro rose as high as $1.4939, a 17-month high, according to Reuters data. It last traded 0.26 percent higher at $1.4864
On Wall Street, disappointment with the economic data outweighed encouraging news of mergers and acquisitions. It also left investors more cautious ahead of Friday's key nonfarm payrolls data.
The Dow Jones industrial average .DJI fell 83.93 points, or 0.66 percent, to 12,723.58. The Standard & Poor's 500 Index .SPX closed down 9.30 points, or 0.69 percent, at 1,347.32. The Nasdaq Composite Index .IXIC lost 13.39 points, or 0.47 percent, at 2,828.23.
Energy and commodity stocks weighed on the market. The S&P energy sector index .GSPE, which was up 34 percent since September, lost 1.5 percent, while the materials index .GSPM dropped 1.7 percent.
The MSCI All-Country World index .MIWD00000PUS lost 1.0 percent, after hitting its highest level in almost three years last week.
In Europe, the FTSEurofirst 300 index .FTEU3 closed down 1.41 percent, pressured by mining and oil shares. Emerging stocks .MSCIEF lost 1.2 percent.
Before this week's decline, world stocks had risen more than 8.0 percent this year as investors grew confident that strong corporate earnings, robust growth in emerging markets and ample liquidity would keep global growth at a reasonable level.
Other safe-haven assets were on the rise, though. The benchmark 10-year U.S. Treasury note rose 8/32 in price, putting its yield at 3.2215 percent.
Portuguese bond yields fell after the country agreed to a three-year, 78-billion-euro ($116 billion) bailout with the European Union and the International Monetary Fund on Tuesday, becoming the third euro zone country in a year, after Ireland and Greece, to seek financial aid.
(Additional reporting by Wanfeng Zhou, Caroline Valetkevitch, Ryan Vlastelica and Frank Tang in New York and Melanie Burton in London; Editing by Clive McKeef)