Global growth concerns hit world markets

[January 26, 2010]  LONDON (AP) -- World stock markets fell Tuesday amid concerns about the speed of the global economic recovery after figures showed Britain emerged from recession far slower than anticipated and investors worried about further lending curbs in China.

In Europe, the FTSE 100 index of leading British shares was down 34.66 points, or 0.7 percent, at 5,225.65 while Germany's DAX fell 41.23 points, or 0.7 percent, to 5,590.14. The CAC-40 in France was 30.61 points, or 0.8 percent, lower at 3,751.24.

Earlier in Asia, China's Shanghai index led the region lower following reports that China's banks have had their reserve requirements increased again. Following those reports, the benchmark Shanghai Composite Index fell 75.02 points, or 2.4 percent, to 3,019.39, its lowest since Oct. 30, 2009.

"It was later clarified that this was simply an implementation of an earlier decision and that no new banks had been affected," said Gareth Berry, an analyst at UBS. "Markets took no chances however."

Investors are particularly worried about policy changes in China as the country's growth helped limit the impact of the global recession over the last year -- figures last week showed that China's economy grew an eye-catching 10.5 percent in the final three months of the year from the year before.

The worry is that tighter monetary policy in China to check inflationary pressures could kill off the nascent economic recovery around the world.

And the economic data around the world suggests that the recovery is not on a sure footing.

Figures Tuesday showed that Britain finally emerged from recession in the last three months of 2009 -- after six consecutive quarters of falling output -- but only at a quarterly rate of 0.1 percent as the services sector barely grew. That was way less than the 0.4 percent consensus in the markets.

The weak growth rate hit the pound hard, pushing it down a whole cent following the data's release to $1.6112, even though the figures raised eyebrows in the markets.

"My experience in looking at data like this for nearly 40 years is that if the official GDP data disagrees with both the data from the labour market and the data from business surveys, the GDP data is probably wrong," said Douglas McWilliams, chief executive of the Centre for Economic and Business Research.

"Accurate data will only become available in about two years time," said McWilliams, who reckons growth was more like 0.5 percent.

Meanwhile, equivalent figures in South Korea did little to excite investors -- fourth quarter growth there slowed to just 0.2 percent because of weakness in manufacturing, construction and exports.

The anemic economic data around the world has been one of the reasons why stock markets have come off recent highs.

President Barack Obama's plan to limit the size of U.S. banks and impose restrictions on their more risky trading activities has added to the downturn in sentiment, which saw Wall Street suffer its worst week in ten months last week.

Wall Street was poised to give up all of Monday's modest gains when it opens later -- Dow futures were down 55 points, or 0.5 percent, at 10,085 while the broader Standard & Poor's 500 futures fell 8.2 points, or 0.8 percent, to 1,084.40.

"Consumer confidence data is the big release due out of the U.S., although this has been a difficult one to call in recent months so we could see some volatility throughout the session," said David Jones, chief market strategist at IG Index.

The key insights into the economic recovery in the U.S. will come Wednesday when the Federal Reserve completes its latest two-day rate-setting meeting. Though the Fed is expected to keep its benchmark interest rate unchanged, investors will be particularly interested to see the accompanying statement, especially if there's continued support for keeping borrowing costs "exceptionally low and for an extended period."

Elsewhere in Asia, Japan's Nikkei 225 stock average retreated 187.41 points, or 1.8 percent, to 10,325.28 and South Korea's Kospi shed 32.86 points, or 2 percent, to 1,637.34.

In Chinese markets, the benchmark Shanghai index dropped 75.02 points, or 2.4 percent, to 3,019.39 and Hong Kong's Hang Seng sank 489.22 points, or 2.4 percent, to 20,109.33. Taiwan's index plunged 3.5 percent.

Elsewhere, Singapore's market was down 2.4 percent and Thailand retreated 0.6 percent. Indian and Australian markets were closed for public holidays.

Oil prices fell to near $74 a barrel amid signs of faltering global demand.

Benchmark crude for March delivery was down 78 cents to $74.48 in electronic trading on the New York Mercantile Exchange.

The euro fell 0.4 percent to $1.4097 while the dollar dropped 0.8 percent to 89.54.

[Associated Press; By PAN PYLAS]

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

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