March 5, 2012 / 12:17 PM / in 6 years

Growth worries send world shares, euro lower

LONDON (Reuters) - World stocks fell and the euro traded near two-week lows on Monday after fresh economic data raised expectations of a recession in Europe, and China signaled it would accept a slower growth rate.

The trading floor is pictured at the Frankfurt stock exchange January 16, 2012. REUTERS/Alex Domanski

Nervousness over whether Greece will complete a bond exchange with private creditors by March 8, to secure a 130 billion euro ($172 billion) bailout deal and avoid a messy debt default, also undermined demand for riskier assets.

U.S. stock index futures pointed to a lower open on Wall Street with January factory orders data and a key index of non-manufacturing activity in February, due at 1500 GMT, likely to extend the focus on the outlook for the global economy.

But it was a downward revision to euro zone surveys of purchasing managers’ assessments for February which did much to wipe out the positive effects of last week’s European Central Bank injection of three-year funding (LTRO) into the banks.

“The macro fundamentals, ex-Germany, do not look good with the sugar rush from the LTRO fading fast and peripheral debt coming under pressure again,” said Jeremy Stretch, head of currency strategy at CIBC World Markets.

The FTSEurofirst 300 .FTEU3 index of top European shares was down 0.7 percent at 1,079.29 points, although it is still up about 7.7 percent this year after hitting a seven-month high late last month.

The euro dipped by 0.1 percent at $1.3180, near its two-week low around $1.3172 on the PMI news.

“Persistent weakness in countries such as Italy and Spain will ... subdue any growth in other euro area countries, which traditionally depend on trade within the region, constraining recoveries in Germany, France and other northern euro nations,”

said Chris Williamson, chief economist at survey compiler Markit.

Shares had already begun to weaken in Asia after China’s Premier Wen Jiabao, speaking at the country’s annual parliamentary session, cut the nation’s growth target to 7.5 percent for 2012 to give the giant economy room to slow down.

The MSCI world equity index .MIWD00000PUS was down 0.4 percent at 330.48 with Chinese and Japanese share markets leading the falls, anticipating a slowdown in the world’s second largest economy.

The falls came despite data showing the HSBC China Services PMI ran at its fastest pace in four months in February, climbing to a seasonally adjusted 53.9 in February from 52.5 in January. The reading contrasted with an official report earlier suggesting the sector was shrinking.

The U.S. dollar index .DXY, which measures the greenback against a basket of major currencies, was just below a two-week high of 79.51 as the darker economic outlook also hit commodity-linked currencies.

The dollar did ease back from a nine-month high against the yen, having risen more than 7 percent in about a month.

GERMAN DEBT SOUGHT

German government bond futures meanwhile rose to a record high as the signs of a contraction in the euro zone, led by a sharp fall in activity at Italian and Spanish businesses, makes it tougher for these governments to tackle their debt problems.

The data undermined the positive sentiment that followed the ECB’s second massive injection of cheap money into the banking system, which indirectly helps to ease borrowing costs of euro zone governments by encouraging the banks to buy their debt.

The recent risk-positive sentiment was also dented on Friday when Spain set itself a softer budget target for 2012 than originally agreed under the euro zone’s austerity drive, raising doubts over the credibility of the European Union’s new fiscal pact.

The front month German Bund future erased its gains during the session to be 4 ticks lower at 140.02, having hit an all-time high of 140.39 earlier.

Ten-year Italian government bond yields rose 4 basis points to 4.96 percent, while two-year Italian yields were up 8.5 bps on the day at 1.91 percent.

Ten-year Spanish yields rose 6.1 basis points to 4.97 percent, while two-year yields gained 8 bps to 2.39 percent. The cost of insuring debt issued by Italy and Spain against default also rose.

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Global services activity: link.reuters.com/dyh85s

European services PMI: link.reuters.com/saj93s

Euro zone crisis in graphics: r.reuters.com/hyb65p

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Gold prices slid below $1,700 an ounce as the dollar rose to a two-week high against the euro on the softer-than-expected euro zone economic data. Spot gold was down 1 percent at $1,697.09 an ounce.

Copper, which has risen nearly 13 percent this year, edged down 0.7 percent on the London Metal Exchange (LME) to around $8,517 a tonne, pressured by weakness in equities and the euro and by concerns about Chinese demand for the red metal.

Oil also fell on the worries about Chinese demand, which overcame supply concerns emanating from the Middle East, with Brent crude down to around $123.67 a barrel and U.S. crude futures for April falling $1.20 to a low of $105.50 per barrel.

($1 = 0.7573 euros)

Additional reporting by Atul Prakash; Editing by Stephen Nisbet

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