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 After a few upbeat days for world markets, concern about China
revived after surveys showed its manufacturing sector shrinking at
its fastest pace in three years and its services sector also
cooling.
Asian stocks, particularly in Japan and Australia, fell overnight,
and the gloomy mood extended to Europe. The FTSEurofirst 300 dropped
2.3 percent, following its worst month in four years.
Futures prices also pointed to Wall Street opening 2 percent lower.
Oil fell back $1.5 towards $50 a barrel, halting biggest three-day
surge in 25 years. [O/R]
"The problem is that we have these brief spells of optimism like we
had last week when U.S. GDP was revised up, but the overall theme is
still the weakness in China and that is very hard to dispel from
markets," said Philip Marey, a strategist at Rabobank in the
Netherlands.
While shares and commodities remained the focus, the mood was
similarly wary in the currency and bond markets.
The safe-haven Japanese yen and the low-yielding euro both rose
against the dollar, to 120.16 yen per dollar and $1.1323 to the
euro.
Gold, another favorite of investors during periods of uncertainty,
was up at $1,143 an ounce. It had risen 3.5 percent in August, its
best month since January.
The head of the International Monetary Fund, Christine Lagarde,
summed up the situation in a speech in Indonesia, where she said
global economic growth was now likely to be weaker than had been
expected just a few months ago.
She cited both a slower recovery in major advanced economies and a
further slowdown in emerging nations and highlighted the need to "be
vigilant for spillovers" from China's stutters.
"The transition (in China) to a more market-based economy and the
unwinding of risks built up in recent years is complex and could
well be somewhat bumpy," she added.
CAUTION! FRAGILE CHINA
The latest bout of volatility was kicked off by losses on Wall
Street, after comments by Federal Reserve Vice Chairman Stanley
Fischer appeared to keep alive chances of a U.S. interest rate
increase in September.
China's official Purchasing Managers' Index (PMI) then compounded
matters, falling to 49.7 in August from the previous month's reading
of 50.0, its weakest showing in three years and below the 50 mark
that separates expansion from contraction.
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"Recent volatilities in global financial markets could weigh on the
real economy, and a pessimistic outlook may become self-fulfilling,"
said He Fan, chief economist at Caixin Insight Group. A separate
survey from Fan's organization had also shown the country's services
sector slowing.
MSCI's broadest index of Asia-Pacific shares excluding Japan lost
1.9 percent to extend the more than 10 percent it had lost in
August.
The Shanghai Composite Index fell 1.2 percent, but the CSI300 index
was almost flat. [.SS]
The pain was felt elsewhere. Japan's Nikkei had slumped 3.8 percent
after losing 8.2 percent in August. Australian, Indonesian and Hong
Kong stocks were all down by more than 2 percent.
Russia's rouble was among the hardest-hit emerging market currencies
as the price of oil fell. Gulf stocks and metals markets were hurt
as well.
London Metal Exchange copper fell almost 1 percent to $5,087.50 as
markets reopened after a long holiday weekend. Nickel slid 2 percent
and aluminum skidded as well.
Another recent victim of the China jitters, the Australian dollar,
edged up. It gained about 0.2 percent to $0.7125 after the Reserve
Bank of Australia held Aussie interest rates steady.
(Additional reporting by Lisa Twaronite in Tokyo; Editing by Larry
King)
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