GLOBAL MARKETS

By Emelia Sithole-Matarise

LONDON |
Thu Aug 18, 2011 5:58pm IST

LONDON (Reuters) – World stocks fell on Thursday as renewed unease about a sluggish economic recovery prompted investors to cut exposure to riskier assets, though the safe-haven Swiss franc also dropped amid signs of further moves by the central bank to stem its rise.

European shares shed 2.7 percent, with worries about the U.S. economy and vanishing prospects of a quick fix for the euro zone’s debt crisis wiping out the previous session’s gains.

The retreat in riskier assets sent investors scrambling for safe havens, buoying gold near record highs, German Bund futures to all-time peaks and driving benchmark U.S. Treasury yields to their lowest level in a week.

Adding to the glum economic outlook, UK. retail sales grew at an unexpectedly slow pace in July.

Earlier, Morgan Stanley analysts became the latest to cut forecasts for global growth, citing “recent policy errors” in the United States and Europe, plus prospects of further fiscal tightening in 2012.

Deutsche Bank cut its projection for Chinese GDP growth to 8.9 percent for 2011 from 9.1 percent and to 8.3 percent for 2012 from 8.6 percent, largely reflecting a downgrade in export outlook due to slower growth in the United States and Europe.

In Europe, shares in sectors linked to global growth such as the automobile sector were worst hit, with some stop-loss selling adding to the slide.

“There is an ever-increasing danger of a double-dip scenario and if that happens, then we are in for even a more steep downturn in stocks,” said Koen de Leus, a strategist at KBC Securities in Brussels.

“In the United States, purchasing power of people has gone down and there is a lot of insecurity concerning jobs. While in Europe, a lot of countries (are running) … austerity programmes.”

MSCI’s world equity index fell 1.2 percent while emerging stocks lost 1.6 percent.

U.S. equity futures pointed to a lower open on Wall Street after closing flat the previous day, following a gloomy sales outlook from tech bellwether Dell which fanned fears slow economic growth would crimp earnings in the third quarter.

Investors are bracing for a slew of U.S. economic data due later in the session that could add to concerns the world’s biggest economy is headed for a protracted downturn. The slate includes inflation, weekly jobless claims, housing and forward-looking economic sentiment survey results.

SWISS TUG-OF-WAR

The Swiss franc fell against the euro and the dollar with traders saying the central bank was intervening in the forwards market in its bid to clip the soaring currency’s wings.

The franc’s sharp gains reflect a broader struggle to tame Europe’s fiscal crisis, with the Swiss currency favoured by investors seeking safety in a currency other than the euro.

“They (the SNB) have been in the FX swap market,” said Chris Walker, currency strategist at UBS. “But we think the euro/Swiss franc will still fall back towards parity.”

“The dollar is also being preferred as there are reports of funding stress and as a loss of risk appetite sees investors make a scramble for (it).”

The euro traded 0.2 percent up at 1.1415 francs while the dollar stood 0.6 percent firmer at 0.7941 francs.

The greenback also rose against commodity-linked currencies like the Australian dollar.

The growing jitters about the growth outlook drove spot gold 1.1 percent up to $1,808.70, taking it to within $5 of last week’s record high.

In bond markets, German Bund futures jumped more than a full point to a record high of 135.08 as the weak economic outlook and concerns EU policymakers were not doing enough to tackle the region’s debt crisis spurred the flight to quality.

U.S. Treasuries advanced, pushing the 10-year T-note yield about five basis points lower to a one-week low of 2.09 percent with sustained safe-haven bids expected to send it to all-time lows around the 2.04 percent seen after Lehman Brothers’ collapse in 2008.

Brent crude futures fell 1.2 percent to $109.20 a barrel, as investors fretting over the euro zone’s debt woes and slower global growth tried to lock in profits from a rally in oil prices to their highest levels in nearly two weeks.

(Additional reporting by Atul Prakash and Anirban Nag; Editing by Stephen Nisbet, John Stonestreet)

Article source: http://feeds.reuters.com/~r/reuters/INbusinessNews/~3/Ud94KVJ_A48/idINIndia-58852220110818

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