World stocks down on worries debt will slow growth

[May 14, 2010]  LONDON (AP) -- World stock markets and the euro fell Friday on worries that Europe's fiscal austerity measures and stubbornly high unemployment in the U.S. will slow down the global economic recovery.

Britain's FTSE 100 slid 1.1 percent to 5,372.75, Germany's DAX dropped 0.6 percent to 6,212.57 and the CAC-40 in France was down 1.9 percent at 3,659.65.

The euro fell to $1.2486, a new 14-month low, from $1.2520 in New York evening trading on Thursday. On Monday, the 16-country common currency had rallied as far as $1.31 on news earlier this week of a new European loan backstop for indebted governments.

Asia closed lower and Wall Street was expected to dip on the open. Dow futures were down 0.4 percent at 10,731 and Standard & Poor's 500 futures were down 0.3 percent at 1,153.10.

Investors initially cheered Monday's announcement of the $1 trillion debt bailout package from the European Union and International Monetary Fund as it halted a speculative run against Greek bonds that had threatened to engulf other countries.

But now, with the worst case scenario averted, investors are wondering how deep spending cuts aimed at cutting deficits in Spain, Portugal and Greece -- as well as big economies like the U.K. -- will slow the global economy.

"It was taken as good news at first, but investors are starting to focus on the impact the austerity measures will have on the macroeconomic picture in Europe," said Lee Kok Joo, head of research at Phillip Securities in Singapore.

Corporate news was somewhat more encouraging, with investors welcoming the latest earnings report by EADS NV, the parent company of plane maker Airbus. Although net profit fell 39 percent, the shares traded higher because the company seemed to have overcome the worst of its delays and cost overruns on several of aircraft programs. Shares were up 1.3 percent in Paris.

Looking ahead, markets will be eyeing the latest U.S. economic data, including retail sales, which are expected to have edged up slightly in April.

The figure is important because consumer spending accounts for three quarters of U.S. economic activity and a fifth of the world economy.

Investors will also be looking for reassurance after disappointing U.S. jobs data on Thursday. A Labor Department report showed U.S. claims for jobless benefits were not falling fast enough to signal steady job growth. High unemployment remains a primary obstacle to a U.S. economic recovery. The Dow closed 1.1 percent lower after the figures' publication.

In Asia, Japan's benchmark Nikkei 225 stock average pared earlier losses to close down 158.04 points, or 1.5 percent, at 10,462.51.

Among Japanese blue chips, Sony Corp. plunged 6.7 percent after its operating profit forecast fell short of expectations.

Investors also dumped banking shares in Tokyo after the New York attorney general launched a probe into eight banks to determine whether they misled rating agencies about mortgage securities.

Hong Kong's Hang Seng index fell 1.4 percent to 20,145.43, China's benchmark index in Shanghai slipped 0.5 percent to 2,696.63 while Australia's S&P/ASX 200 index dropped 0.9 percent.

Shares in Malaysia, India, and Thailand also fell while Indonesia gained and South Korea was little changed.

The dollar edged down to 92.63 yen in Tokyo from 92.66 yen in New York late Thursday.

Benchmark crude for June delivery was down 85 cents at $73.55 a barrel in electronic trading on the New York Mercantile Exchange. The contract dropped $1.25 to settle at $74.40 on Wednesday.

[Associated Press; By CARLO PIOVANO]

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

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