Global recovery fears weigh on markets

[August 25, 2010]  LONDON (AP) -- World stock markets fell again Wednesday as worries over the U.S. and Japanese economies continued to weigh on sentiment despite another positive German economic survey.

Global markets have been sliding for most of August as economic indicators from the U.S., Japan, China and elsewhere suggested global growth will slow in the second half, dimming earnings prospects for manufacturers and other exporters.

In Europe, the FTSE 100 index of leading British shares was down 6.31 points, or 0.1 percent, at 5,149.64 while Germany's DAX fell 23.97 points, or 0.4 percent, to 5,911.47. The CAC-40 in France was 7.04 points, or 0.2 percent, lower at 3,484.07.

"Although the losses may appear to be modest in comparison to yesterday's sell-off, the temptation to continue unwinding positions in light of the worsening economic outlook could well resurface," said Ben Critchley, a sales trader at IG Index.

How the rest of the trading day pans out will likely hinge on Wall Street, where indexes were poised to recoup some of Tuesday's losses. Dow futures were up 16 points, or 0.2 percent, at 10,039 while the broader Standard & Poor's 500 futures rose 0.2 percent to 1,051.70.

That could change, though, if investors get jittery about the U.S. economic outlook once again. Figures Tuesday showing that existing home sales in the U.S. tanked in July to their lowest level in 15 years hit sentiment hard, and at one stage the Dow dropped below the 10,000 mark for the first time since early July.

"That big 10,000 level for the Dow will also be closely watched as a sustained break lower here could prove damaging psychologically, with traders on both sides of the Atlantic using it as another excuse to resume selling," said Critchley.

Because the U.S. housing market was the catalyst behind the financial crisis and the ensuing global recession, its failure to stabilize is stoking renewed concerns about the sustainability of the U.S. recovery and reigniting talk that the Federal Reserve will have to pump more money into the economy to stave off a double-dip recession.

Following the existing sales disappointment on Tuesday, investors will be looking at the equivalent reading for new home sales during July. The consensus in the markets is they were unchanged at 330,000.

With U.S. economic data consistently underperforming market forecasts, there are mounting expectations that the Fed will have to do more to get the U.S. economy back on track, and all eyes will be on the central bank's chairman Ben Bernanke on Friday when he outlines his latest thoughts in a speech at the annual Jackson Hole Economic Symposium.

Besides the U.S., Japan -- which only grew by a quarterly rate of 0.1 percent in the second quarter -- will suffer if the yen carries on rising. On Tuesday, it hit a 15-year high against the dollar and a nine-year peak against the euro and the fear is that the country's high-value exporters will find it increasingly difficult to compete in the international marketplace. Figures Wednesday showed that Japan's exporters are already feeling the pinch -- export growth slowed for the fifth consecutive month in July.

Those concerns clearly weighed on the Nikkei 225 stock average, which closed 149.75 points, or 1.7 percent, lower at a 16-month low of 8,845.39.

In a bid to curb the yen's rise, Finance Minister Yoshihiko Noda told reporters Wednesday that Japan will "respond appropriately when necessary." Japan has not intervened in the foreign exchange market since March 2004.

The threat of intervention seemed to dampen the yen's rise -- by late morning London time, the dollar was 0.4 percent higher at 84.45 yen.

Meanwhile, the euro was supported by a survey showing Germany's business confidence maintained its upward trend in August. The Ifo research institute said its closely watched business confidence index rose to 106.7 points from 106.2 points in July and that companies planned to hire more people despite an anticipated drop in the recent export boom that has spurred Europe's biggest economy to surprisingly robust growth.

By late morning London time, the euro was 0.1 percent higher at $1.2645.

Elsewhere in Asia, China's benchmark Shanghai Composite Index fell 53.73 points, or 2 percent, to close at 2,596.58. Hong Kong's Hang Seng dropped 23.73, or 0.1 percent, to 20,634.98.

Benchmark crude for October delivery was up 26 cents at $71.89 in electronic trading on the New York Mercantile Exchange. The contract fell $1.47 to settle at $71.63 on Tuesday.

[Associated Press; By PAN PYLAS]

AP Business Writer Joe McDonald in Beijing contributed to this report.

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