|Stocks, oil falter on view on China economy|
|Monday, 08 October 2012 16:12|
World stocks and oil prices fell on Monday after the World Bank cut its growth forecast for China, emphasizing concerns about the prospects for the global economy.Jitters over the euro zone debt crisis knocked the euro down from two-week highs as uncertainty about Spain persisted after euro zone finance ministers meeting in Luxembourg said the country did not yet need a bailout.
The World Bank's downward revision for growth expectations for the East Asia and Pacific region added to the cautious tone in stocks heading into corporate earnings season, which starts in earnest in the United States on Tuesday.
Analysts forecast earnings will fall 2.4 percent from the year-ago quarter, which would mark the first decline in three years and make it difficult to justify keeping stocks near recent peaks.
"There is just a lot of uncertainty out there, so any little thing right now tends to be a bit of a drag. Some of it is China, some of it may be concerns about Europe again," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.
The World Bank said there was a risk the slowdown in China could worsen and last longer than many analysts have forecast. Still, the international lender expects China to have a soft landing. It revised its forecast to growth of 7.7 percent this year and 8.1 percent for next year.
Earlier this year, the World Bank had forecast 8.2 percent growth for China in 2012 and 8.6 percent in 2013.
Wall Street was modestly lower in midday trading, while European shares .FTEU3 ended down 1 percent. World shares as measured by the MSCI world equity index .MIWD00000PUS were down 0.7 percent.
The Dow Jones industrial average .DJI slipped 27.73 points, or 0.20 percent, to 13,582.42. The Standard & Poor's 500 Index .SPX were down 5.29 points, or 0.36 percent, at 1,455.64. The Nasdaq Composite Index .IXIC lost 25.46 points, or 0.81 percent, to 3,110.72.
The World Bank's forecast deflated some of last week's positive sentiment in markets spurred by an unexpected drop in the U.S. unemployment rate.
China's role as the last major growth engine in the world economy amplified the impact of the World Bank's forecasts in foreign exchange and commodity markets.
Fears slower economic growth would curb oil demand initially sent Brent crude lower, but tension in the Middle East helped the commodity pare losses. Brent was little changed at $111.94 a barrel, while U.S. crude dropped 44 cents to $89.44 a barrel.
Uncertainty over the next steps in solving the euro zone's debt crisis, coupled with the weak economic outlook weighed on the euro, which was 0.5 percent lower at $1.2967.
Euro zone finance ministers said Spain was taking steps to overhaul its economy and did not need a bailout, at least for now.
Arriving at a meeting in Luxembourg to discuss Greece and Spain and to inaugurate the euro zone's permanent bailout mechanism, German Finance Minister Wolfgang Schaeuble said Madrid had made clear it wanted no help.
"Perhaps those types of comments are not necessarily positive for the euro in the sense that markets are still looking for a Spanish request as the next big step forward for Europe," said Vassili Serebriakov, currency strategist at Wells Fargo in New York.
The euro had hit two-week highs on Friday. The dollar was up 0.3 percent against a basket of currencies .DXY.
In Europe, fresh data showed investor sentiment had improved for a second consecutive month in October thanks largely to the monetary easing by central banks and Germany's backing for a new permanent bailout fund for the European currency bloc.
German export data for August also surprised by jumping 2.4 percent month-on-month, surpassing expectations for a drop of 0.5 percent in a Reuters poll of 17 economists.