Equity markets around the world fell and the dollar weakened yesterday as investors shifted to safer government debt after soft US private jobs data and disappointment at Japan’s efforts to boost economic growth.

World equity markets have weakened in recent days as investors weigh the ability of major central banks to boost growth and the possibility that stimulus will be reduced in coming months. MSCI’s world equity index was last down 1.3 per cent, near a one-month low.

European markets fell after data showed eurozone business activity eased in May and on separate confirmation that the region’s economy contracted in the first quarter.

Investors sent Japan’s main Nikkei share index tumbling 3.8 per cent to a two-month low, unimpressed by pledges from Prime Minister Shinzo Abe to make incomes grow and set up special economic zones.

Market participants are also mulling the outlook for the Federal Reserve’s hefty US monetary stimulus programme, which is expected to be curtailed in coming months.

The Fed – the US central bank – has explicitly linked the health of the jobs market to the continuation of its ultra-loose monetary policy.

While weak jobs data would point to the Fed continuing its bond-buying program to keep rates low, which would be good for stocks, the policy has come under review as some data points to growing economic momentum and officials worry about the collateral effects on funding markets.

Investors will get more clues on the Fed’s thinking with the release of the its beige book, an anecdotal report on economic conditions by the policy-setting Federal Open Market Committee, set for release at 2pm.

The dollar, which had already fallen below the 100-yen level in Tokyo trading, touched a low of 99.13 yen. The yen had been weakening as Japanese stocks soared in recent months on expectations of improved growth in Japan.

“The market has just been acting tired,” said Gordon Charlop, managing director at Rosenblatt Securities in New York. “People have been focusing a lot on Japan and their stimulus, so you’ve seen the market tracking the yen.”

The Dow Jones industrial average was down 128.63 points, or 0.85 per cent, at 15,048.91. The Standard & Poor’s 500 Index was down 14.70 points, or 0.90 per cent, at 1,616.68. The Nasdaq Composite Index was down 30.22 points, or 0.88 per cent, at 3,415.04.

US private sector employers added 135,000 jobs in May, the ADP payroll service reported, fewer than the 165,000 expected. The number increased the likelihood that tomorrow’s Labour Department nonfarm payrolls report, which the Fed tracks closely, will also point to a weak labour market. US Treasuries prices rose after data showed growth in the vast US services sector remained lackluster and a measure of employment fell to its lowest level in close to a year. The benchmark 10-year Treasury note was up 17/32, the yield at 2.0892 per cent.

In the third tranche of measures aimed at boosting Japanese growth, Prime Minister Abe pledged to boost incomes and attract foreign businesses, but did not mention plans to encourage Japan’s public funds to seek higher returns by investing more in riskier assets like equities.

The Nikkei index had hit a five-and-a-half-year high on May 23, marking a rise of more than 50 per cent for 2013, when doubts about the effectiveness of Abe’s economic reforms and Bank of Japan stimulus efforts began to cause a change in sentiment.

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