US economic concerns dog world markets

[July 17, 2010]  LONDON (AP) -- World stock markets fell Friday after another drop in U.S. inflation and a big slide in consumer sentiment reinforced fears that the U.S. economic recovery is slowing down sharply.

In Europe, the FTSE 100 index of leading British shares closed down 52.44 points, or 1 percent, at 5,158.85 while Germany's DAX fell 109.09 points, or 1.8 percent, to 6,040.27. The CAC-40 in France was 81.66 points, or 2.3 percent, lower at 3,500.16.

On Wall Street, the Dow Jones industrial average was down 186.71 points, or 1.8 percent, at 10,172.60 around midday New York time while the broader Standard & Poor's 500 index fell 21.71 points, or 2 percent, to 1,074.77.

Stocks took a dive after the Commerce Department reported that consumer prices fell 0.1 percent during June, the third straight monthly decline. That pulled the annual inflation rate down to an eight-month low of 1.1 percent from 2.0 percent in May.

Lower inflation maybe be attractive to shoppers in the near-term but is a concern in the markets as it reinforces fears that demand in the U.S. economy is not recovering.

Those worries were fanned further by a survey from the University of Michigan showing consumer sentiment falling to an 11-month low in the first part of July. The survey was released two days after government figures showed U.S. retail sales fell by more than anticipated. Both indicate that consumers are getting worried about their job and income prospects.

U.S. retail figures are particularly important because they shine a light on the state of consumption, a key driver of growth. U.S. retail spending accounts for around 70 percent of the world's largest economy.

"Recent worries about the strength of the economic recovery have come back to the forefront of investors' minds today," said David Jones, chief market strategist at IG Index.

The recent raft of downbeat U.S. data has had a big impact in the currency markets, where the euro briefly broke above $1.30 for the first time in over two months.

By late-afternoon London time, the euro was flat at $1.2930. Earlier in the session, the euro had risen to a high of $1.3007, the first time it has breached the $1.30 level since May 10.

The euro has advanced over 10 cents against the dollar since hitting a four-year low of $1.1878 in early June on a combination of easing worries over Europe's sovereign debt crisis and concerns about the U.S. economic recovery.

Mark O'Sullivan, director of dealing at Currencies Direct, thinks the euro has further room to rise, provided next Friday's EU bank stress test are credible.

"The results will be very important in underlining confidence once gain in the eurozone and the euro may shed the fear factor and emerge once again as an attractive alternative to the dollar," said O'Sullivan.

Earlier in Asia, Japan's benchmark Nikkei 225 stock index lost 277.17 points, or 2.9 percent, to 9,408.38, its biggest drop since June 7, amid concerns that the rising value of the yen will hurt Japanese exporters.

By late-afternoon London time, the dollar was down a further 1.1 percent at 86.46 yen.

South Korea's Kospi shed 0.7 percent to 1,738.45, Australia's S&P/ASX 200 was down 0.5 percent at 4,422.70 and Hong Kong's Hang Seng index rose 0.06 percent to 20,267.87.

Shanghai's Composite Index was steady at 2,424.27 after China said Thursday its gross domestic product expanded by 10.3 percent in the second quarter from a year earlier, down from 11.9 percent growth in the first quarter.

Benchmark crude for August delivery was down 52 cents to $76.10 a barrel in electronic trading on the New York Mercantile Exchange.

[Associated Press; By PAN PYLAS]

Associated Press writer Alex Kennedy in Singapore contributed to this story.

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