Shares slump as U.S. slowdown joins emerging-market woes

Tue Feb 4, 2014 6:59am EST
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By Marc Jones

LONDON (Reuters) - World shares slumped to near a four-month low on Tuesday as signs of a slowdown in the U.S. economy aggravated the anxiety caused by a sell-off in emerging markets.

A report showing U.S. factory activity was weaker than expected had caused both the dollar and global equities to fall on Monday. European investors remained anxious on Tuesday after another session of sustained selling in Asia.

Futures prices pointed to a 0.3 percent rebound for Wall Street later, but a mid-morning attempt at a stabilization failed in Europe. The benchmark FTSEurofirst index .FTEU3 fell 0.4 percent and headed for a third day of declines. And Europe looked almost rosy compared with Asia.

Tokyo's Nikkei .N225 plunged 4 percent in its worst day since June, cementing its position as the worst performer in developed markets in 2014. MSCI's emerging-market index .MSCIEF dropped 1.4 percent, putting its losses since late October at almost 12 percent.

"It does look as if developed-market equities are playing catchup with emerging markets," Societe Generale strategist Kit Juckes said. "The dollar has somewhat run out of steam, and I suspect the focus today may well be on yen strength as well as how much further the equity market falls can go."

With a flight to safety going on, German government bonds, considered to be one of Europe's most secure investments, saw prices hit a 6-month high. Debt from elsewhere in the region lost ground. <GVD/EUR>

The Australian dollar jumped after its central bank appeared to shut the door on further rate cuts. But the main focus of the currency market remained the U.S. dollar's contest with the yen.

Two factors were at play. U.S. bond yields fell after the weak data hit the dollar, and the Nikkei's plunge pushed up the yen. The Nikkei and yen often see-saw: as one goes up, the other goes down.   Continued...

A man looks at at an electronic stock quotation board outside a brokerage in Tokyo January 14, 2014. REUTERS/Issei Kato