World markets drop on China growth worries

[October 22, 2009]  LONDON (AP) -- World stock markets fell sharply Thursday as investor optimism was dented by a broker downgrade of U.S. bank Wells Fargo and concerns about future Chinese economic growth.

In Europe, the FTSE 100 index of leading British shares was down 75.01 points, or 1.4 percent, at 5,182.84 while Germany's DAX fell 97.13 points, or 1.7 percent, to 5,736.36. The CAC-40 in France was 67.36 points, or 1.7 percent, lower at 3,805.86.

Earlier in Asia, markets tracked Wall Street lower after influential banking analyst Dick Bove downgraded Wells Fargo over concerns about its loan book.

"After a good earnings season for the banks so far this served to remind investors that we shouldn't be reaching for the Champagne bottles just yet as there are still lingering problems in our financial system," said Tom Salmon, a trader at Spreadex.

And though government figures showed that China grew by a year high of 8.9 percent in the third quarter of 2009, investors were worried that much of the growth stemmed from a domestic stimulus package that can't last forever. Exports and private investment continued to lag.

"Disappointment on the back of this numbers this morning was sufficient to bring risk appetite off the boil," said Jane Foley, research director at Forex.com.

The Chinese growth figures came after the country's Premier Wen Jiabao told a Cabinet meeting Wednesday that policy will focus on balancing economic growth while managing inflation -- raising worries the government may cut back on its lavish stimulus efforts.

China has been the world's major driver through the recession and any suggestion that it won't be growing as fast in the months ahead could spook investors, especially if the global recovery is not as strong as many in the markets have been expecting.

The rally in stocks since March's lows have been predicated on hopes that the global economic recovery will be quicker and more substantial than valuations were implying. So far, most U.S. companies have reported better-than-expected earnings and painted a fairly rosy picture for the coming months, helping major indexes push back above the levels they were over a year ago before Lehman Brothers collapsed.

Many now think that the valuations could be too optimistic, especially if governments and central banks think their job is done and start withdrawing some of the stimulus measures they have enacted over the last year or so.

"There's no escaping the simple fact that stocks have been starting to look increasingly overbought for some time now.," said Ben Potter, research analyst at IG Markets. "As always the question is just how protracted any sell-off will be."

The sell-off is set to continue when Wall Street opens. Dow futures were 21 points, or 0.2 percent, lower to 9,880 while the broader Standard & Poor's 500 futures fell 3.5 points, or 0.3 percent, to 1,074.60. On Wednesday, the two main U.S. indexes fell around 1 percent.

Once again, the focus of attention in the markets will be on the latest batch of third-quarter U.S. corporate earnings. Among those due to report later are Amazon, American Express, AT&T and Merck.

Earlier in Asia, Japan's Nikkei 225 stock average fell 66.22, or 0.6 percent, to 10,267.17, and Hong Kong's Hang Seng dropped 107.59 points, or 0.5 percent, to 22,210.52.

In China, the Shanghai index lost 19.18 points, or 0.6 percent, to 3,051.41. South Korea's benchmark fell 1.4 percent, Australia's index was off 0.5 percent and India's market shed 1.2 percent.

Oil prices slipped to near $80 a barrel Thursday as a wobbly U.S. dollar steadied. Benchmark crude for December delivery fell $1.24 to $80.13 a barrel. The contract jumped $2.25 overnight after the dollar fell to a 14-month low against the euro.

The fall in stocks has provided the dollar with some relief Thursday. As investors grow more willing to take on risk, stocks have rallied and the dollar has dropped against the euro. Conversely, when shares have fallen, the dollar has tended to rise as it is widely considered a safe haven asset

The euro was down 0.1 percent at $1.4979 while the dollar rose 0.3 percent to 91.23 yen.

[Associated Press; By PAN PYLAS]

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

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