Shares fall in volatile session, dollar drops
Stock markets around the world fell yesterday, extending the previous day’s steep decline on concerns over the pace of global economic growth and when the US Federal Reserve’s stimulus program would end.
US stocks partially recovered from steep early losses and bond yields slipped. While the modest recovery was viewed as a sign that Wednesday’s sharp decline was overdone, the S&P 500 remained on track for its worst two-day decline since April.
Weakness in the previous session was sparked when Fed chief Ben Bernanke broached the possibility of reducing stimulus if US economic conditions improve.
While Fed officials stressed that no action was likely for months, investors are anxious about the timing of any change in monetary policy, which is widely credited with fuelling massive gains in stocks and high-yield corporate bonds this year.
“The commentary was very benign and wasn’t anything unexpected; the sell-off came because we were looking for an excuse to correct after the big moves this year,” said Eric Green, senior portfolio manager at Penn Capital Management in Philadelphia.
The Dow Jones industrial average was down 47.72 points, or 0.31 per cent, at 15,259.45. The Standard & Poor’s 500 Index was down 10.22 points, or 0.62 per cent, at 1,645.13. The Nasdaq Composite Index was down 14.85 points, or 0.43 per cent, at 3,448.45.
Yesterday’s measured rebound continued a recent trend of investors using any equity market decline as a buying opportunity. A rally in Hewlett-Packard Co, which jumped 13 per cent to $24.09 a day after raising its profit outlook, helped limit losses and keep the Dow in mildly positive territory.
Still, overseas markets were sharply lower, driving investors to safe-haven currencies. At the session peak, the yen rose more than two per cent against the dollar and the euro, which both lost one per cent against the Swiss franc , also seen as a safe haven.
Chinese factory activity shrank for the first time in seven months, adding to concerns that the world’s second-biggest economy had stalled. European factory sentiment dropped, suggesting that the eurozone’s economy was likely to contract again in the second quarter.
Japanese shares were hit hardest in overnight action, with the Nikkei losing 7.3 per cent, its biggest one-day fall in two years. European shares ended 2.1 per cent lower and MSCI’s world equity index lost 1.5 per cent.
“Even though we were overdue for a correction, the Chinese data certainly didn’t help things. If it proves to be part of a trend, that’s very concerning for the global economy,” said Green, who helps oversee $7 billion in funds.
US light crude oil, which is closely tied to the pace of economic growth, fell 1.2 per cent. The US dollar index fell 0.76 per cent.
The Euro STOXX 50 Volatility Index, Europe’s widely used measure of investor risk aversion, surged nearly 15 per cent to a three-week high. The CBOE Volatility Index rose three per cent. (Reuters)