European shares hammered after commodity rout

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[November 13, 2015]  By Alistair Smout

LONDON (Reuters) - European shares were set for their biggest weekly fall since September on Friday after commodity prices tumbled to multi-year lows on worries over a glut in supply and slower global economic growth.

The FTSEurofirst 300 fell 1 percent, down 2.9 percent for the week and set for its biggest weekly loss in ten.

Basic resources stocks were down more than 5.9 percent this week, with energy shares down 4.8 percent over the same period.

"The markets are alarmed that there have been further sharp falls in commodity prices," Russ Mould, investment director at AJ Bell, said in a note.

"There is increasing evidence that global growth is slowing and investor confidence has been hit as a result."

Commodity prices showed some signs of stabilization, although they remained near multi-year lows.

Oil prices edged away from two-month lows, having tumbled to near six and a half year lows this week. Prices had dipped to levels last seen in August after concerns over Chinese growth rocked markets.

U.S. crude futures touched a 2-1/2 month low of $41.38 per barrel on a persistent rise in U.S. stockpiles and were poised for a 5 percent decline for the week.

Copper, often seen as a good gauge of the world's economic health because of its extensive industrial use, touched a six-year low of $4,787.50 per tonne, below its August trough. It was set for a 3.6 percent loss for the week.

James Butterfill, Head of Research & Investment Strategy at ETF Securities, said he expected the supply of copper to tighten as mining firms cut back on capital expenditure.

"We expect miners to continue to cut capex, which raises concerns over their longer term profitability," he said.

"That's why we think we're nearing the floor in copper ... as the cuts in capex will lead to a constriction on supply. Markets have also priced in a big contraction in Chinese consumption, which the data is not supporting."

Gold edged back up to $1,086.02 from a six-year low of $1,074.26 per ounce.

RATE HIKE

Futures on Wall Street <ESc1> were down 0.2 percent. On Thursday various Fed officials lined up behind a likely December interest rate hike.

Stanley Fischer, the Fed's second-in-command, noted that the central bank could move next month to raise interest rates, while New York Fed President William Dudley said the risk of waiting too long was now roughly in balance with the risk of moving too soon to normalize rates.

U.S. retail sales, due later on Friday, will be closely monitored for further clues about the likely timing of a U.S. rate hike.

Bets that the Federal Reserve will raise U.S. interest rates for the first time in almost a decade next month saw investors pull out of Treasuries at the fastest rate in 1-1/2 years over the last week, Bank of America Merrill Lynch said on Friday.

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The big beneficiaries were European equity funds which are being buoyed by the prospect of another dose of Mario Draghi's stimulus from the European Central Bank next month, notching their 24th week of gains in the last 26.

Expectations that the Fed may hike rates while the ECB may ease policy further has pushed the two-year US-German yield gap to its widest in 9 years and the 5-year spread to its widest since 1999.

December could also be the first time since bond markets crashed in May 1994 that the Fed raises interest rates as Europe cuts.

The dollar index, which tracks the U.S. currency against a basket of six of its major peers, has edged back from Tuesday's seven-month high of 99.50 to last trade at 98.659, flat on the day.

The dollar was also flat at 122.60 yen, off Monday's 2-1/2-month peak of 123.60.

The euro slipped 0.3 percent to $1.0786, remaining under pressure after the ECB's Draghi singled out the currency's more robust performance since May as one driver for a "weakening" outlook on inflation on Thursday.

However, the euro looked set to end the week in positive territory, its loss on the day leaving it well above $1.0700 and stymying those who had expected the greenback to surge again after very strong jobs data a week ago.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 1.4 percent.

Japan's Nikkei closed down 0.5 percent, snapping a seven-day winning streak, while the Shanghai Composite index slipped 1.4 percent.



MSCI's ACWI, the index compiler's broadest gauge of world shares covering 46 markets fell to its lowest level in a month, having slipped 3.5 percent from its 2 1/2-month high touched on Nov 4.

(Editing by Toby Chopra and Gareth Jones)

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