US growth worries spook investors, stocks slide

Stocks and the dollar tumbled on Wednesday as weak U.S. data and corporate news raised worries about the health of the global economy, while government bonds rose as investors took cover in safe-haven assets.

Fears of a U.S. recession fuelled by further bad news on the world’s largest economy on Tuesday also hit commodity prices and sent U.S. crude below $91 a barrel to four-week lows.

Technology bellwether Intel Corp’s quarterly results and outlook missed Wall Street targets, following hard on the heels of a record loss for Citigroup and an unexpected fall in U.S. retail sales last month, raising speculation of an early Federal Reserve rate cut.

The dollar hit a record low of about 1.0839 Swiss franc and a 2-1/2 year low near 105.97 yen. The euro edged up 0.1 percent to $1.4820.

“Risk aversion triggered by weak equity markets and widening corporate credit spreads has led carry positions to be slashed leading the dollar to fall against the yen and Swissie,” said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frank.

The FTSEurofirst 300 index of top European shares fell more than 1 percent in the first hour of trade as U.S. recession fears hit banks such as HSBC.

MSCI world equity index was down nearly 1.2 percent to hit its weakest since mid-August.

Earlier, Japan‘s Nikkei ended at a fresh two-year low, closing down 3.4 percent at 13,504.51, while MSCI’s measure of other Asian stock markets slid nearly 4 percent.

BONDS RISE

Weakness in equities helped boost demand for safe-haven government bonds, driving yields lower. Among euro zone bonds, the 10-year Bund yield fell below 4 percent for the first time since March 2007.

The benchmark 10-year yield for U.S. Treasuries fell to 3.65 percent, after touching a low of about 3.62 percent — the lowest since mid-2003.

“Given more and more weak economic data and bad news about bank earnings, the market looks set for a further rally even though it’s already in an overshoot area,” said Yoshio Takahashi, bond strategist for Barclays Capital Japan.

Investors are eyeing key U.S. consumer inflation data due later for clues on how aggressively the Fed could cut interest rates without fanning inflation expectations.

Interest rate futures expect an almost 1-in-2 chance of a hefty 75 basis points cut this month in U.S. benchmark interest rates, from 4.25 percent.

Gold, usually seen as a safe-haven play, fell victim to profit-taking after failing to break the record high of $914 an ounce set on Monday.

Spot gold was trading around $885 an ounce, although further downside was seen limited by a struggling dollar and buying from jewellers.

Reuters

(Editing by Mike Peacock)