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GLOBAL MARKETS-Stocks fall on debt, data woes; gold rises
July 29, 2011 / 7:10 PM / 6 years ago

GLOBAL MARKETS-Stocks fall on debt, data woes; gold rises

* World stocks on track for worst week since August 2010

* Threats of Spain downgrade, U.S. default, data weigh

* Safe-haven Swiss franc, gold, Treasuries rally (Updates prices, adds comment, details)

By Wanfeng Zhou

NEW YORK, July 29 (Reuters) - World stocks headed for their biggest weekly loss in almost a year on Friday as investors piled into safe-haven assets on worries about sovereign debt crises on both sides of the Atlantic and data that showed meager growth in the U.S. economy.

The Swiss franc, a traditional safe-haven currency, rose to record highs against both the dollar and the euro, and gold prices soared to a record high above $1,630.

With four days remaining until the United States hits its debt limit, President Barack Obama on Friday told deeply divided Republicans and Democrats to stop bickering and find a way “out of this mess.” For details, see [ID:nN1E76S004]

Fears that Europe’s debt crisis was spreading grew after Moody’s Investors Service threatened to downgrade Spain’s credit rating. [ID:nN1E76S004]

Adding to investor gloom, the government reported the U.S. economy grew at a meager 1.3 percent annual rate in the second quarter as consumer spending barely rose. The government also said the economy came perilously close to flat-lining in the first quarter, a sharp downward revision from its previous estimate. [ID:nCAT005481]

“The U.S. debt talks will remain front and center going into the weekend and the uncertain outcome will probably lead to more deleveraging, especially after weak U.S. data and Moody’s decision to put Spanish debt on negative watch,” said Kathy Lien, director of currency research at GFT in New York.

Stock markets pared losses after Obama said he was confident a solution could be reached on the debt ceiling talks. Republicans in the House of Representatives said they expected to vote on Friday on a retooled deficit-reduction measure.

At 2:53 p.m. EDT (1853 GMT), the Dow Jones industrial average .DJI was down 49.87 points, or 0.41 percent, at 12,190.24. The Standard & Poor's 500 Index .SPX was down 2.70 points, or 0.21 percent, at 1,297.97. The Nasdaq Composite Index .IXIC was up 1.43 points, or 0.05 percent, at 2,767.68.

World equities as measured by the MSCI world equity index .MIWD00000PUS fell 0.3 percent. The benchmark index has fallen 2.7 percent this week, and is on track for its biggest weekly loss since August 2010.

European stocks closed out their worst week since March, with the pan-European FTSEurofirst 300 .FTEU3 finishing down 0.7 percent. Emerging market stocks .MSCIEF were down 0.7 percent.

Even if U.S. lawmakers agree on a last-minute debt limit deal, many investors believed that would not prevent credit ratings agencies from downgrading the United States’ triple-A ratings.

“We’re basically standing on the edge of an abyss, peeking over with the bottom nowhere to be seen. That’s the situation facing all financial markets heading into a weekend that could prove to be one of the most crucial in history,” said Ben Potter, a strategist at IG Markets. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Full coverage of U.S. budget and debt [nUSBUDGET]

SCENARIOS-Obama options if no debt deal [nN1E76O0QG]

Graphics package



The dollar plunged to all-time lows against the Swiss franc of 0.7853 CHF=EBS. It also hit a four-month trough against the yen of 77.01 on trading platform EBS JPY=EBS, edging close to a record low of 76.25, and heightening worries that Japanese authorities may step in to stem currency strength.

The dollar was on track for a monthly loss of about 4.2 percent against the yen, the biggest since December 2008. It shed about 6.1 percent against the Swiss franc in July -- the worst monthly performance since December 2010.

Japan Finance Minister Yoshihiko Noda warned about the strong yen, saying he would consider how long Japan could ignore current exchange rate moves without acting. [ID:nT9E7IE01O]

The euro EUR=EBS last traded at $1.4374, up 0.3 percent after Moody's placed Spain's Aa2 credit rating on review for possible downgrade. The move followed Thursday's disappointing Italian debt auction, which saw 10-year bonds sold at the highest yield in 11 years.

The weak U.S. economic data raised the prospect of further monetary accommodation, boosting demand for gold and U.S. government debt.

Spot gold XAU= rose as high as $1,632.30 per ounce, before easing back to around $1,624. Ten-year Treasury notes US10YT=RR were more than a point in price, pushing yields to 2.83 percent, and 30-year bonds rose 1-22/32, with yields easing to 4.16 percent.

U.S. crude oil CLc1 fell $1.67 to $95.77 a barrel.

Economic growth “was much weaker than the government had previously estimated and this opens the door for potentially another round of quantitative easing from the Federal Reserve,” said Gary Thayer, chief macro strategist at Wells Fargo Advisors in St. Louis. (Additional reporting by Angela Moon, Gertrude Chavez-Dreyfuss, Frank Tang and Ellen Freilich; Editing by Leslie Adler)

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