Stocks, euro drop as global recovery uncertain

By Manuela Badawy

NEW YORK (BestGrowthStock) – U.S. stocks (Read more about the stock market today. ) fell on low volume on Monday after strong German manufacturing data failed to improve restore investor confidence in global economic recovery in the wake of poor U.S. jobs data on Friday.

The euro slid to a new four year low below $1.19, while safe-haven investments such as U.S. Treasuries gained, and gold prices rose to just $10 below their all-time high as on concern that the U.S. economic recovery may be slowing, Europe’s economies are being hit by fiscal austerity measures and even China’s boom may be topping out.

Data Friday showed the U.S. economy generated fewer jobs than expected in May and comments from Hungarian officials suggested the country could face a Greek-style debt crisis. The Hungarian government on Monday though stressed that the country was not in the same situation as Greece and would meet budget deficit targets set in an aid deal with the International Monetary Fund and European Union.

Germany Monday reported industrial orders jumped far more than expected in April, adding to signs that Europe’s largest economy was on the path to durable growth, but the data did little to raise hopes of a healthy recovery in Europe as a whole.

“There is a lot of nervousness in the market. On the one hand we have the positive (German manufacturing) data, but there is also anxiety about Hungary keeping pressure on the market,” said Heinz-Gerd Sonnenschein, equity markets strategist at Deutsche Postbank.

U.S. stocks (Read more about the stock market today. ) dropped on low volume, led by industrial and technology shares, as investors stayed on the sidelines after last week’s jobs data discouraged buyers.

The Dow Jones industrial average (.DJI: ) ended down 115.48 points, or 1.16 percent, at 9,816.49. The Standard & Poor’s 500 Index (.SPX: ) fell 14.41 points, or 1.35 percent, at 1,050.47. The Nasdaq Composite Index (.IXIC: ) dropped 45.27 points, or 2.04 percent, at 2,173.90.

MSCI’s all-country world stock index fell almost 2.0 percent, and its emerging market index dropped 2.7 percent.

In the currency markets, European corporate demand helped lift the euro after it fell to $1.1876, its weakest level since March 2006. But the euro remained below $1.20, a level broken on Friday after Hungary’s warning about its deficit reminded investors of the severe debt problems plaguing some European countries.

The euro last traded down 0.48 percent at $1.1916 from a previous session close of $1.1973. Against the Japanese yen, the U.S. dollar was down 0.46 percent at 91.49 from a previous session close of 91.910.

“After Hungary’s warning and weaker-than-expected U.S. jobs data Friday, selling got a bit overdone,” said Amelia Bourdeau, senior strategist at UBS in Stamford, Connecticut.

Hungary — a member of the European Union but not the euro zone — is of minimal importance on the global level, but there are concerns about exposure among leading banks if Hungary defaults or if the fall in the forint currency fuels a rise in loan delinquency among Hungarians who have borrowed heavily in euros and Swiss francs.

It also comes hard on the heels of worries about defaults in Greece and other southern euro zone members.

“Greece can’t devalue or easily default on its debt, but presumably Hungary can, so it’s a double-edged blade,” said Michael Woolfolk, senior strategist at BNY Mellon in New York.

Euro zone governments will issue about 27.5 billion euros worth of new bonds this week, with Spain, Portugal and Italy all due to hold auctions.

The pan-European FTSEurofirst 300 stock index closed 1.0 percent lower, pressured by a fall in BP’s stock (BP.L: ). The U.S. Coast Guard said the United States will be dealing with the oil spill from the April 20 rig explosion for another four to six weeks. BP plans to double the amount of oil it is capturing from its ruptured Gulf of Mexico well to 20,000 barrels per day.

Adding to the pressure, Goldman Sachs downgraded the oil major to “neutral” from “buy.”

U.S. Treasuries climbed as increasingly risk-averse investors continued to look for safe-haven government bonds and ahead of this week’s $70 billion supply.

The benchmark 10-year U.S. Treasury note was up 1/32, with the yield at 3.2022 percent. The 2-year U.S. Treasury note was down 1/32, with the yield at 0.746 percent. The 30-year U.S. Treasury bond was down 2/32, with the yield at 4.1361 percent.

Spot gold prices rallied $21.40, or 1.76 percent, to $1240.40 an ounce just $10 below its all-time high as investors took advantage of the dip in prices to buy the metal as a haven from risk in other markets.

“We are seeing gold as the ultimate currency because of all of these growing uncertainties surrounding sovereign debt in the euro zone, and the fact that there are very few attractive currencies out there, said Bill O’Neill, partner at New Jersey-based commodity firm LOGIC Advisors.

“It’s a perfect storm for gold.”

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(Additional reporting by Frank Tang, Steven C. Johnson in New York, Harpreet Bhal in London; )

Stocks, euro drop as global recovery uncertain