European, Asian stocks fall on growth worries

June 22, 2012 - 11:08 AM
Japan World Markets

A man walks by the electronic stock board of a securities firm in Tokyo indicating the Nikkei index which fell 47.09 points to 8776.98 yen in the morning session Friday, June 22, 2012. Asian stock markets fell Friday as gloomy economic reports from the world's two biggest economies piled, heightening fears of a sharper global downturn. (AP Photo/Itsuo Inouye)

FRANKFURT, Germany (AP) — European and Asian stocks fell Friday after economic reports suggested growth will weaken in the world's major economies. Downbeat data on Germany, China and the U.S. came on top of uncertainty over whether European leaders will make progress in tackling their debt crisis at key meetings.

Wall Street, however, bounced back from big losses the previous day, as investors sought out bargain stocks.

Earlier, Germany's Ifo institute reported that business optimism fell for a second straight month in Europe's largest economy, which has been growing more strongly than the 17-member eurozone as a whole. The survey index dipped to 105.3 from 106.9 in May.

That followed a U.S. Labor Department report from Thursday that the four-week average of applications for unemployment benefits jumped to the highest level in nine months. Appetite for financial assets such as stocks was also dented by the results of a monthly HSBC survey, which showed that manufacturing in China has continued to contract.

China's growth has been a pillar of the global economy in recent years, so its slowdown has been of particular concern to investors.

Meanwhile, infighting over Europe's heavy debt burden continued, leading IMF head Christine Lagarde to warn that the euro is under "acute stress" and to urge leaders of the 17 countries that use the currency to consider steps such as jointly issuing debt.

The leaders of Germany, France, Italy and Spain met in Rome on Friday to seek common ground ahead of an EU summit on June 28-29 in Brussels. They committed €130 billion to boost economic growth, but offered no new measures to boost confidence in some of the eurozone's weaker members by, for example, sharing debt burdens.

Britain's FTSE 100 closed 1 percent lower at 5,513.69, while the French CAC 40 shed 0.8 percent to 3,090.90 and the German DAX 30 blue chips index fell 1.3 percent to 6,263.25.

U.S. shares rose on the open, with the Dow up 0.5 percent and the Standard & Poor's 500 0.4 percent higher. Banks stocks led the gains as investors deemed the previous' day's losses — triggered by a ratings downgrade — overdone.

In Europe, the chief piece of bad news was the Ifo report. It follows downbeat readings from the ZEW survey of investors and a poll of purchasing managers that also suggest the Germany economy is lagging.

"The survey echoes the other indicators in suggesting that the German economy is doing little more than stagnating at the moment, and may even be contracting," write Jonathan Loynes, chief European economist at Capital Economics Ltd in London. "In short, another blow to hopes that strong growth and higher inflation in Germany would help to solve the euro-zone crisis."

Traders also reacted to several negative U.S. indicators. On top of the jobs figures, sales of previously-owned homes fell 1.5 percent in May. A further sign of weakness in the world's No. 1 economy came from the Philadelphia branch of the Federal Reserve, which issued a report showing that manufacturing in the northeast had experienced a sharp decrease due to a steep fall in company orders.

"With signs of weakness in the U.S. economy, the persistence of the eurozone debt crisis and the threat of a hard landing in China looming, the prospect of a synchronized economic slowdown is real," analysts at DBS Bank Ltd. in Singapore said in a market commentary.

Sentiment was also shaken after Moody's Investors Service lowered the credit ratings of 15 major banks, including Bank of America, JPMorgan Chase and Goldman Sachs, saying their long-term prospects for profitability and growth are shrinking. Downgrades generally make it more costly for banks to raise money by selling debt because investors demand higher interest in return for taking on riskier debt.

"Of course, they deserve it for years of mismanagement and speculative trading activities ... and also the exposure to sovereign bank debt," said Francis Lun, managing director of Lyncean Holdings in Hong Kong. "So, as a result, all these major international banks are being downgraded to a more realistic level."

In Asian trading, Japan's Nikkei 225 index fell 0.2 percent to 8,802.54 and South Korea's Kospi slid 2.1 percent to 1,848.57. Hong Kong's Hang Seng Index lost 1 percent to 19,067.51 and Australia's S&P/ASX 200 was down 1 percent at 4,046.70. Benchmarks in Singapore, Taiwan, Thailand and Indonesia fell while the Philippines rose. Markets in mainland China were closed for a public holiday.

Benchmark oil for August delivery was up $1.16 to $79.36 per barrel in electronic trading on the New York Mercantile Exchange.

The euro fell 0.1 percent to $1.2541. The dollar rose 0.2 percent to 80.51 yen.

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Pamela Sampson in Bangkok contributed to this report.