August 12, 2013 / 1:53 AM / 4 years ago

Global shares stumble as recovery signs stir stimulus worries

Workers speak above an electronic information board at the London Stock Exchange in the City of London January 2, 2013. REUTERS/Paul Hackett

LONDON (Reuters) - World stocks headed for their fifth fall in six sessions on Monday and safe-haven assets including the dollar, gold and the Swiss Franc made gains, as signs of economic recovery pointed to cuts in stimulus.

Signs that China’s slowdown may have run its course and expectations that data this week will point to the euro zone pulling out of its longest recession on record are bolstering hopes that the global economy is gaining strength.

But at the same time investors are becoming jittery that the better outlook means major central banks such as the U.S. Federal Reserve will begin scaling back the support that has driven the sharp rally in markets over the last few years.

U.S. stocks were expected to open down 0.1-0.3 percent when Wall Street resumes. Last week they posted their biggest weekly decline since June as comments from Fed policymakers sparked renewed talk of stimulus withdrawal.

European shares quickly lost the positive momentum China data had provided to Asian markets and by 0800 ET Britain’s FTSE 100 .FTSE, Germany’s DAX .GDAXI and Paris’s CAC 40 .FCHI were down 0.2-0.3 percent, still within touching distance of last week’s 2-1/2 month high.

Analysts cautioned that holiday-thinned trading was amplifying the moves and that many investors were likely to be biding their time for the week’s headline data releases on Tuesday and Wednesday.

“I suspect today there is a bit of keeping one’s powder dry ahead of these market moving pieces of economic data,” said IG Index strategist Alastair McCaig.

“You kind of imagine tonight’s U.S. federal budget comments could easily get railroaded into being an interpretation of the potential tapering of (Fed) QE and on Wednesday we have some pretty important European GDP figures.”

Bond markets were also quiet, with Spanish and Italian debt making a little ground, while for currency investors the euro and yen eased against the dollar, which continued to edge away from last week’s seven-week low.

Talk about when the U.S. Federal Reserve will begin cutting back on the $85 billion a month it spends to buy bonds to help the economy still dominates the markets.

Not only is it having a heavy influence on bond markets and the dollar but also on other safe-haven currencies like the Swiss franc which rose 0.5 percent on Monday.

CHINA

Supporting markets was reassuring data from China, the world’s number two growth engine.

In Asian trading, China’s CSI300 .CSI300 share index climbed 2.1 percent, extending last Friday’s rise after factory output grew in July at its fastest pace this year.

Data released after the market close on Friday was equally positive, showing Chinese new bank loans and money supply for July came in higher than expected despite a fall in a broad measure of liquidity.

“What we saw last week was that the figures from China lent some support to the feeling in the market that the slowdown (in China) is over,” said Rabobank economist Elwin de Groot.

“I am a little bit careful though, these are still early days ... but once Asia begins to re-accelerate then that is good for Europe.”

JAPAN‘S GROWTH SLOWS

Tokyo’s Nikkei share average .N225 shed 0.7 percent to hit its lowest since June 28 after data showed Japan’s economy grew at a slower-than-expected pace in April-June, prompting investors to cut their risk exposure.

But the yen reversed early gains to trade down 0.6 percent at 96.80 yen to the dollar. Earlier, it had strengthened as much as 0.4 percent to 95.92 yen to the dollar, not far from a seven-week peak of 95.810 yen touched last week, and hit a six-week high at 127.97 yen to the euro.

Japan, the world’s third-largest economy, grew an annualized 2.6 percent in the second quarter, a third straight quarter of expansion but slower than a downwardly revised 3.8 percent rate in the first quarter.

The median forecast was for annualized growth of 3.6 percent, and so the data may heighten calls to delay a planned sales tax increase.

Yields on benchmark 10-year Japanese government bonds, which move opposite to prices, edged down 0.5 basis point to a three-month low of 0.745 percent.

In commodities markets, copper prices slipped 0.3 percent to around $7,250 a tonne after climbing 1.3 percent to a two-month high on Friday after the upbeat Chinese factory data.

They rose 3.9 percent last week to log their best weekly gain in almost a year.

Brent crude prices dipped 0.4 percent to slip below $108 a barrel after they advanced 1.4 percent on Friday to snap a five-day run of losses - the longest since April.

Meanwhile, gold rose 1.3 percent and was heading for a fourth straight day of gains. It came as holdings in the world’s biggest gold exchange-traded fund rose for the first time in two months.

“The inflows into SPDR are good news,” said a trader in Hong Kong. “The fund tends to have an impact on prices because of its size. But I don’t think (inflows) will persist as fundamentals for gold are still negative.”

Additional reporting by A. Ananthalakshmi in Singapore; Editing by Catherine Evans

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