Investors sold shares across the globe on Tuesday, unnerved by falling U.S. consumer confidence and house prices that suggested the economy was still fragile, while German business confidence fell unexpectedly for the first time in almost a year.
A flight to safety bid fed into U.S. dollar strength which in turn made commodities less attractive, pulling crude oil prices from six week highs to below $80 a barrel and left spot gold prices weaker to hover just $1,100 an ounce.
MSCI's All Country World stock index <.MIWD00000PUS> fell 0.41 percent from an earlier three-week high.
In the United States, concerns about business conditions and the weak job market pulled consumer confidence down more than expected in February to its lowest level in 10 months.
That exacerbated the decline in U.S. share prices, already under selling pressure early on Tuesday.
The Dow Jones industrial average <.DJI> was down 78.60 points, or 0.76 percent, at 10,304.78. The Standard & Poor's 500 Index <.SPX> was down 11.76 points, or 1.06 percent, at 1,096.25. The Nasdaq Composite Index <.IXIC> was down 27.91 points, or 1.24 percent, at 2,214.12
European share prices extended their losses on the U.S. data. The pan-European FTSEurofirst 300 <.FTEU3> index fell 1.15 percent, with banks the worst performers.
The closely watched Standard & Poor's/Case-Shiller indexes showed a surprising drop in December home prices, although the annual rate of decline did slow. A Reuters survey expected no change. [ID:nN23248077] [ID:nN2375237]
"It's the second straight monthly decline in the Case-Shiller (index). So on balance, I think it might be generally negative for risk appetite and on the margin positive for the dollar," said Omer Esiner, senior market analyst for Travelex Global Business Payments in Washington.
The euro <EUR=> was down 0.32 percent at $1.3554 from a previous session close of $1.3597. It is hovering just above a nine-month low.
EURO ZONE WOES
Germany's much watched Ifo business climate index fell as a result of harsh winter weather that weighed on the construction and retail sectors and hinted Europe's largest economy could revert to contracting in the first quarter.
The Ifo institute's business climate index fell to 95.2 in February, lower than forecasts for 96.1. [ID:nLDE61M0UN]
Adding to the gloom was a Fitch Ratings credit downgrade of Greece's four largest banks, reminding investors of the unresolved and worrying fiscal problems in Athens and the lack of clarity from the euro zone on how it might aid one of its members. [ID:nWNA4501]
The U.S. dollar rose against major currencies as measured by the ICE Futures Exchanges's dollar index <.DXY> which was up 0.23 percent at 80.694 from a previous session close of 80.507.
Sterling fell sharply after Bank of England chief Mervyn King said in parliamentary testimony the central bank could increase quantitative easing if the economy worsens and the recovery remained fragile. The BoE paused its 200-billion sterling asset buying program earlier this month.
U.S. Treasury bond prices rose on the weak U.S. data. The benchmark 10-year U.S. Treasury <US10YT=RR> rose 20/32 of a point in price to yield 3.72 percent, ahead of an auction of $44 bln 2-year notes by the U.S. Treasury later on Tuesday.
"The Treasury market is looking at the equity markets and thinking that weaker equities might mean a flight to quality bid for Treasuries," said Gary Thayer, chief macrostrategist at Wells Fargo Advisors in St. Louis, Missouri.
German 2-year government bond yields hit a euro-lifetime low of 0.906 percent <EU2YT=RR>.
U.S. light sweet crude oil <CLc1> fell $1.72, or 2.14 percent, to $78.59 per barrel, and spot gold prices <XAU=> fell $6.10, or 0.55 percent, to $1107.20
BERNANKE EYED
U.S. Federal Reserve Chairman Ben Bernanke will testify to Congress on Wednesday on the central bank's exit strategies, but speculation of a near-term rise in U.S. interest rates stemming from a discount rate increase last week has cooled.
San Francisco Fed President Janet Yellen was the latest policymaker to stress the move to raise the rate on emergency loans was not a sign for rapid monetary tightening.
The U.S. economy still needed extraordinarily low interest rates, as inflation was "undesirably low" and growth would likely be sluggish for several years, she said Tuesday.
