Darker economic outlook sends euro lower

Thu May 24, 2012 6:48am EDT
 
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By Richard Hubbard

LONDON (Reuters) - The euro hit a 22-month low and safe-haven German bonds achieved record low yields, after data showed Europe's economic woes worsening as business confidence is undercut by talk of a Greek exit and slow progress in tackling the debt crisis.

Private-sector factory activity in China also faltered in May as demand for exports fell, in a sign the impact of the euro zone crisis could be undermining global economic recovery. Europe is China's largest export market.

The darkening economic outlook spurred the dollar on Thursday to a 20-month high against other major currencies, but shares staged a modest rebound after a late-day reversal in the United States encouraged some bargain hunters.

The key reading from the latest round of Markit Purchasing Managers Indexes (PMIs) was a fall in Germany's factory sector, which was hit by a drop both in exports and new orders for goods.

In addition, German business sentiment dropped for the first time in seven months, missing even the most conservative forecasts, according to the Munich-based Ifo think tank.

"Companies are now reacting to the increased uncertainty out there. And that's not going to abate," Andreas Scheuerle, an economist at DekaBank.

The PMI data for the euro area showed activity was declining at a faster pace than expected in May, which was seen as confirmation that a downturn started in smaller periphery members is taking root in the core countries of Germany and France, whose tepid growth had been keeping the troubled bloc afloat.

"It's a message to EU policymakers that the situation is not as good as they describe it," Lloyds Bank strategist Achilleas Georgolopoulos said.   Continued...

 
A woman smiles as she walks past an electronic board displaying graphs showing recent movements of Japanese market indices, outside a brokerage in Tokyo February 15, 2012. REUTERS/Yuriko Nakao