World stocks down as dollar rise hits commodities

[June 15, 2009]  LONDON (AP) -- World stock markets fell Monday as some investors worried that the three-month rally in share prices may not be justified by economic indicators and as the dollar was boosted by comments this weekend from Russia's finance minister.

In Europe, stock indexes fell quite sharply following earlier losses in Asia, with the FTSE 100 index of leading British shares down 80.22 points, or 1.8 percent, at 4,361.73 and Germany's DAX 100.19 points, or 2 percent, lower at 4,969.05. The CAC-40 in France was down 60.74 points, or 1.8 percent, at 3,265.40.

The selling pressure is set to continue when Wall Street opens later. Dow futures were 102 points, or 1.2 percent, lower at 8,636 while the broader Standard & Poor's 500 futures fell 12.3 points, or 1.3 percent, to 928.40.

Keith Bowman, an equities strategist at Hargreaves Lansdown stockbroker in London, said the downbeat start to the week was related to an appreciation of the dollar after Russia's finance minister Alexei Kudrin said on the sidelines of the weekend meeting of G-8 finance ministers in Italy that the dollar's status as the world's main reserve currency was unlikely to change in the near term. Kudrin has been one of those in the Russian administration voicing worries about the dollar's status in recent months.

"We have seen an inverse relationship recently between the dollar and commodity prices," said Bowman.

By mid-morning London time, the dollar was 1 percent higher against the euro, with the single European currency trading at $1.3870, and around 0.2 percent higher against the Japanese yen at 98.21 yen.

Among commodity prices, oil fell below $71 a barrel Monday as a three-month rally lost steam amid the strengthening dollar. Benchmark crude for July delivery was down $1.12 to $70.92 in electronic trading on the New York Mercantile Exchange.

Monday's drop in commodity prices hit mining and energy stocks, particularly in Europe. Among the main fallers were Anglo American PLC, Rio Tinto PLC, BP PLC Total SA and ENI Spa.

Elsewhere, the G-8 meeting provided investors with little new direction. Though they acknowledged "signs of stabilization in our economies," they also said it was too early to withdraw massive fiscal and monetary stimulus because the fallout from the financial and economic crisis wasn't over.

Despite the improvement in recent economic indicators, which has led a number of economists around the world to start predicting a global economic recovery this year, concerns linger. In recent days, the rise in interest rates on U.S. government bonds and in oil prices in recent weeks have combined to bring those concerns to the fore.

"I think the real danger is that we slump back into deep recession rather than quickly return back to normal," said Neil Mackinnon, chief economist at ECU Group.

"As a result, all this talk of higher interest rates and a swift end to quantitative easing is not just misplaced but also dangerous," he added.

Stock markets have rallied over the last three months, and as equities usually start rising 6 to 9 months before actual recovery emerges in the official economic data, this suggests investors believe the massive sell-off in markets during the most acute phase of the financial crisis was overdone. Some of the world's major equity indexes are now in positive territory for 2009.

Earlier in Asia, Japan's Nikkei 225 stock average lost 96.15 points, or 1 percent, to 10,039.67 -- on Friday, the index finished above the psychologically important 10,000-point level for the first time since October 7, 2008. And Hong Kong's Hang Seng slipped 390.72 points, or 2.1 percent, to 18,498.96.

Elsewhere in Asia, China's Shanghai index bucked the regional trend to rise 1.7 percent to 2,789.55 while Singapore's market fell 2.3 percent and Taiwan's benchmark dived 3.5 percent. South Korea's ended 1.1 percent down at 1,412.42.

[Associated Press; By PAN PYLAS]

AP Business Writer Yuri Kageyama in Tokyo contributed to this report.

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