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 European shares fell, before recovering slightly, and Wall Street
looked set to open lower, according to index futures.
Tokyo's Nikkei index lost 3 percent, its biggest one-day drop since
August, after the news that the world's third-largest economy
unexpectedly shrank by an annualised 1.6 percent in July-September.
This followed a 7.3 percent contraction in the previous quarter,
caused by a rise in national sales tax, and ran counter to
economists' forecasts for a 2.1 percent rebound.
The data initially pushed the yen to a seven-year low against the
dollar, but as Tokyo stocks fell the Japanese currency rebounded.
The news also shaved $1 off the price of Brent crude oil, as demand
would fall if economies slide, and sent ripples across Europe, where
the FTSEurofirst 300 <.FTEU3> pan-European share index was down 0.1
percent, having pared earlier losses.
Data on Friday showed euro zone economic output expanded more than
expected in the third quarter but remained weak.
Leaders from the G20 group of countries agreed a package of measures
on Sunday which they said would add an extra 2.1 percentage points
to growth over five years.
But financial markets focused on Japan's economic downturn, which
set the stage for Prime Minister Shinzo Abe to delay an increase in
the sales tax and call a snap election.
"It's a bit of shock for the market, because people believed that
the Bank of Japan had everything under control. But overall, the
initial negative reaction shouldn't last too long. Investors still
expect central bank action worldwide to support the global economy,"
FXCM analyst Nicolas Cheron said.
Other Asian shares also fell. MSCI's main index of Asia-Pacific
stocks outside Japan lost 0.7 percent.
Chinese equities dropped as profit taking outweighed buying by
foreign investors as a landmark Hong Kong-Shanghai trading link
debuted on Monday.
The Shanghai Composite ended down 0.2 percent and Hong Kong's Hang
Seng lost 1 percent.
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The yen was the big mover on foreign exchange markets. After the GDP
data, it fell to as low as 117.06 to the dollar but then rebounded
and was last at 116.25, a shade higher on the day.
"People (in London) are doing a bit of position squaring after
getting caught out by the scale of this surprise," said Daragh
Maher, a strategist at HSBC in London.
The euro was down 0.2 percent at $1.2499.
As the Japanese data stoked concerns about the global economy,
undermining stronger-than-expected U.S. retail sales data on Friday,
German 10-year Bund yields edged down to 0.79 percent, just above a
record low of 0.716 percent.
Brent crude last traded at $78.28 a barrel, down 1.4 percent after
the Japanese data was seen hitting global demand and as Saudi Arabia
reiterated the oil price should be left to supply and demand.
"This is a market where traders are looking for selling
opportunities," said Ole Hansen, senior commodity strategist at Saxo
Bank.
Eyes remain on possible OPEC production cuts when the oil cartel
meets next week.
Gold held near two-week highs on a softer dollar. Spot gold was last
at $1,187.15.
(Additional reporting by Lisa Twaronite in Tokyo,Blaise Robinson in
Paris and Claire Milhench in London; Editing by Jeremy Gaunt and
Susan Fenton)
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