World stocks fall on US outlook, Asia hurt by yen

[September 28, 2009]  LONDON (AP) -- World stocks fell Monday after disappointing data from the U.S. undermined hopes of a fast economic recovery and a sharp strengthening in Asian currencies hurt confidence among the region's exporters.

Meanwhile, pledges from the Group of 20 rich and developing nations to keep stimulus plans intact failed to boost sentiment.

Germany's DAX fell 0.1 percent to 5,575.18, Britain's FTSE 100 lost 0.5 percent to 5,058.17 and France's CAC-40 shed 0.8 percent to 3,710.63.

Asian markets sank even more, with Tokyo slumping 2.5 percent on fears that a stronger yen will hurt its key exports sector. Wall Street was likewise expected to open lower. Dow industrials futures were down 23 points at 9,596.00 and Standard & Poor's 500 futures were down 2.50 points at 1,038.60.

U.S. manufacturing and home sales data released Friday stoked concerns over recovery prospects in the world's largest economy and pushed American stocks lower for a third day.

Orders for durable goods, a key indicator for the manufacturing industry, unexpectedly fell in August, declining 2.4 percent for the second drop in three months. The government also said that new home sales rose to 429,000 last month, which was less than analysts expected.

The U.S. economy is "not recovering as fast as we thought," said Jackson Wong, vice president at Tanrich Securities in Hong Kong.

The G-20 summit that ended Friday in Pittsburgh gave little added support to markets despite leaders' pledge to maintain fiscal and monetary stimulus measures.

"It will come as a relief to markets that officials are not going to prematurely reverse such policies but the risk is that both fiscal and monetary policy is left too loose for too long, fueling potentially significant inflation risks," said Mitul Kotecha, analyst at Calyon.

The G-20 said it wanted to reduce imbalances in the world economy -- reducing U.S. consumers' reliance on foreign debt and boosting domestic demand in large exporting countries like China.

Kotecha noted that "one of the key adjustments that will need to be made is a weaker dollar, especially Asian currencies, but there was no mention of this in the communique."

That did not prevent traders from buying up Asian currencies aggressively on Monday.

The dollar fell as low as 88.22 yen Monday, its lowest point since December, but recovered losses to trade at 89.53 from 89.60 late Friday in New York. The euro fell to $1.4629 from $1.4698.

Japan's Nikkei 225 stock average fell 256.46, or 2.5 percent, to 10,009.52, at one point dipping below the 10,000-point level for the first time in two months, after the yen reached a nine-month high versus the dollar. Hong Kong's Hang Seng index declined 435.99, or 2.1 percent, to 20,588.41.

A stronger yen can hurt Japanese exporters by reducing the value of overseas profits when sent back home and can make their products less price competitive. Many Japanese exporters have based their earnings forecasts on the assumption that $1 buys an average of 95 yen.

Japan's new government, which took power this month, has expressed little concern about a stronger yen and even says it is potentially a good thing as it can boost consumer spending by making foreign goods and raw materials cheaper.

Finance Minister Hirohisa Fujii on Monday said exchange rate stability was desirable but reiterated his opposition to intervening in foreign exchange markets to weaken the yen's value, according to Kyodo news agency.

South Korea's Kospi fell 0.9 percent while Singapore's benchmark declined 1.3 percent. China's Shanghai index surrendered early gains to fall 2.7 percent. Markets in India were closed.

In New York on Friday, the Dow Jones industrial average fell 0.4 percent, its third straight decline.

Oil prices, meanwhile, traded lower. Benchmark crude for November delivery fell 58 cents to $65.44 a barrel in electronic trading on the New York Mercantile Exchange. On Friday, the contract added 13 cents to settle at $66.02.

[Associated Press; By CARLO PIOVANO]

AP writers Tomoko A. Hosaka in Tokyo and Kelly Olsen in Seoul contributed to this report.

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