Markets fretful ahead of US jobs data

[May 06, 2011]  LONDON (AP) -- Mounting fears of a slowdown in the U.S. economy unnerved investors Friday ahead of crucial jobs data, with oil prices taking the brunt of the sell-off to extend their biggest one-day drop in two years.

Commodities were hit particularly hard because growth in the world's largest economy is crucial for demand of crude, metals and raw materials.

Benchmark crude oil for June delivery was down $2.75 at $95.94 a barrel in electronic trading on the New York Mercantile Exchange. The day before, oil plunged $9.44 to settle at $99.80 a barrel as mounting concerns about the U.S. economy triggered the biggest one-day percentage decline in more than two years.

Investors have been spooked by a run of weak U.S. economic data ahead of the U.S. nonfarm payrolls data later. An unexpected 43,000 rise in weekly U.S. jobless claims Thursday added to concern about the recovery and suggested that the April payrolls figure may come in below current expectations for 185,000.

"Given the weakness of this week's data some estimates have been revised down to the 160,000 level," said Michael Hewson, market analyst at CMC Markets.

One positive impact of falling commodity prices, at least in stock markets, is that they may ease the pressure on central banks to raise interest rates as quickly as expected if inflation levels start easing.

Ahead of the figures, stocks were trading in fairly narrow ranges.

In Europe, the FTSE 100 index of leading British shares was down 0.4 percent at 5,894 while Germany's DAX rose 0.2 percent to 7,394. The CAC-40 in France was 0.1 percent higher at 4,010.

Wall Street was poised for a fairly flat opening following sizable declines Thursday -- Dow futures were up 0.1 percent at 12,581 while the broader Standard & Poor's 500 futures rose 0.1 percent to 1,337.

How Wall Street actually opens will likely depend on the payrolls figures.

The same can be said for the dollar, which is currently fairly buoyant against the euro after the European Central Bank's president Jean-Claude Trichet on Thursday failed to signal that another rate hike in June was likely.

That took the shine off the euro currency, which had pushed up towards 18-month dollar highs on expectations the central bank would follow up April's first interest rate increase in nearly three years with another one in June.

Though a July rate rise to 1.5 percent from the current 1.25 percent is expected, the pause suggested to investors that the ECB may not be quite as optimistic over the pace of the economic recovery in Europe as it had previously been.

And if oil prices continue to slide, analysts said rate hike expectations could be pushed out even further.

"Certainly another drop in crude oil prices after the 13 percent drop this week to date would have greater implications for rate expectations in the eurozone and undermine the euro further still," said Derek Halpenny, European head of global currency research at The Bank of Tokyo-Mitsubishi UFJ.

By mid morning London time, the euro was down 0.2 percent at $1.4530. At one point on Thursday, it was trading over $1.49.

Earlier in Asia, Japan's Nikkei 225 index slid 1.5 percent to 9,859.20. Investors worried about the renewed strength in the yen, which has the potential to harm the country's exporters, which are already struggling with destroyed factories, severe parts shortages and power outages since a devastating earthquake and tsunami on March 11.

On Thursday, the dollar fell as low as 79.54 yen, sparking expectations of another intervention in currency markets by Japan. The dollar hasn't traded below 80 yen since March 18, when the world's richest nations intervened to weaken Japan's currency and soften the economic blow dealt by the earthquake.

Elsewhere, South Korea's Kospi index dropped 1.5 percent to 2,147.45 and Hong Kong's Hang Seng index shed 0.4 percent to 23,159.14. Australia's S&P/ASX 200 was 0.2 percent down.

Mainland Chinese shares were mixed. The Shanghai Composite Index lost 0.3 percent to 2,863.89, while the smaller Shenzhen Composite Index gained 0.4 percent to 1,195.31.

[Associated Press; By PAN PYLAS]

Fu Ting contributed from Shanghai.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.