Global shares lost momentum on Friday, falling for the first time in five days after weak Chinese trade data, though declines were limited by expectations policymakers could act to shore up the world's economies.
Stock markets' recent rally has been underpinned by comments by ECB President Mario Draghi two weeks ago that the central bank was "ready to do whatever it takes to preserve the euro," raising hopes of heavy bond buying to aid Spain and Italy.
A lower than expected reading in China's July exports on Friday, however, soured the mood. In addition, new bank loans in China were at a 10-month low, suggesting pro-growth policies have been slow to gain traction and that more urgent action may be needed.
The weakness in exports was in part due to slower demand from Europe.
"The data was not bad, it was horrendous," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
"China's export problem is an external problem and it has to do with Europe," he added. "After these numbers, investors may want to see (stimulus) activity fairly quickly, especially from the ECB."
Some economists said the Chinese central bank could move as early as this weekend to ease policy.
European and U.S. stocks were modestly weaker shortly after Wall Street's opening bell. The data also sent the euro tumbling to hit a one-week low.
"There was a hope that the stimulus that has been put in place would start to drive things in the third quarter, but there is nothing in these data that suggests the (Chinese) economy is really picking up," said Adrian Foster at Rabobank.
ECB THE KEY
Limbo in the euro zone is keeping markets in check.
Next week, second-quarter gross domestic product data is expected to show the euro zone economy contracted.
Hopes are high that the ECB will step in with bond purchases to ease borrowing costs for Spain and Italy. But until details emerge – including the strings attached to any support – investors will be wary.
The euro fell to $1.2239, the lowest since Aug. 3, and was last at $1.2249, down 0.5% on the day.
"The euro is working its way through another small corrective phase within a massive, long-term downshift," said Richard Hastings, macro strategist at Global Hunter Securities.
The FTSEurofirst 300 index of top European shares was down 0.3%, as was the MSCI's world equity index .
The Dow Jones industrial average slipped 12.60 points, or 0.10%, at 13,152.59. The Standard & Poor's 500 Index was down 1.47 points, or 0.10%, at 1,401.33. The Nasdaq Composite Index was down 9.21 points, or 0.31%, at 3,009.43.
The benchmark 10-year U.S. Treasury note was up 13/32, with the yield at 1.6488 percent.
Oil markets were lower after the International Energy Agency cut its demand forecasts for next year and said crude stocks were rising.
Brent crude fell $1.26 to around $111.96 a barrel, while U.S. crude was down $1.20 at $92.16.
"Lower economic growth is feeding through to slower oil demand all round," said David Fyfe, head of the IEA's markets division. "Global inventories have risen, and the oil market looks comfortably supplied."
