Stocks hit by economic worry; euro slips

By Wanfeng Zhou

NEW YORK (Reuters) – Major stock markets fell for a fourth session Monday on concerns about slowing global economic growth, while the euro slipped after a German official suggested a second Greek bailout was not yet certain.

Losses in U.S. and European shares paled in comparison with a more than 10 percent tumble in Peru’s stock market after a presidential election victory by left-wing former army commander Ollanta Humala stoked fears of a roll-back in free-market reforms.

Crude oil prices were lower ahead of an OPEC meeting later this week, weighed by growing signs that high prices are destroying energy demand in the West.

On Wall Street, the benchmark S&P 500 index hit a more than two-month low after May’s weak U.S. labor and manufacturing data pushed stocks to five weeks of losses. The index is down more than 5 percent from its May high, but still up nearly 3.0 percent for the year.

“This seems like a continuation of sentiment from last week, where investors are coming to the realization that the economy is not growing as strongly as once anticipated,” said Wasif Latif, vice president of equity investments at USAA Investment Management in San Antonio, Texas.

“The weak economic data throughout last week corroborated those suspicions and because of that you are seeing the continuation (of the equities slide).”

The Dow Jones industrial average ended down 61.30 points, or 0.50 percent, at 12,089.96. The Standard & Poor’s 500 Index was down 13.99 points, or 1.08 percent, at 1,286.17. The Nasdaq Composite Index was down 30.22 points, or 1.11 percent, at 2,702.56.

In Europe, the FTSEurofirst 300 fell 0.6 percent to 1,104.97, an 11-week closing low.

World stocks, as measured by the MSCI world equity index fell 0.8 percent. The Thomson Reuters global stock index dropped 0.9 percent. Emerging market stocks shed 0.6 percent.

Investors dumped Peru’s financial assets, triggering freezes in stock trading and a currency intervention by the central bank as investors doubted Humala’s vows to manage the economy prudently.

Peru’s stock market sank more than 12 percent, while the sol currency fell 1.5 percent, prompting the central bank to offer to sell about $215 million in deposit certificates aimed at curbing the currency’s fall.

Joyce Chang, global head of emerging markets research at JPMorgan, said the “market has probably overreacted a bit” and recommended investors look for buy opportunities in Peruvian debt.

“I think that there’s probably going to be at this stage of the game more positive than negative surprises. We would frankly look for opportunities to add exposure,” Chang told the Reuters 2011 Investment Outlook Summit in New York.

 

GREEK BAILOUT NOT CERTAIN

The euro last traded 0.5 percent lower at $1.4566. It dipped below $1.46 after a spokesman for the German finance ministry said a second aid program for Greece was not yet certain.

The currency extended declines after Jean-Claude Juncker, the chairman of euro zone finance ministers, said the euro is ”objectively overvalued.”

Policymakers have inched toward a new bailout package that German media said could exceed 100 billion euros, which helped the euro hit a one-month high of $1.4658.

Traders said the market assumes a deal will be reached to allow Greece more time to repay its debt and that markets were already bracing for European Central Bank President Jean-Claude Trichet Thursday to signal plans to raise euro zone interest rates in July.

“The focus will turn toward interest rate differentials, and with the Federal Reserve unlikely to do anything this year, an ECB rate hike will pull money toward the euro and other currencies,” said Boris Schlossberg, head of currency research at GFT in New York.

U.S. crude closed below $100 a barrel, settling at $99.01, down $1.21, or 1.21 percent. Brent crude oil settled at $114.48 a barrel, down $1.36, or 1.18 percent. It was the lowest settlement since May 24, when Brent crude closed at $112.53.

At an OPEC meeting this week, the cartel could lift its oil production targets, although leading member Saudi Arabia is likely to face tough opposition in its push to raise supply from hawks Venezuela and Iran.

Concerns about the economy fueled fresh gains for safe-haven gold, with spot gold up 0.1 percent at $1,542.79 an ounce. The metal hit a session high of $1,553.30, its loftiest since early May.  U.S. Treasuries prices fell as investors pushed to cheapen government debt heading into the auction of $66 billion of notes and bonds this week. The 30-year bond yielded 4.27 percent, up from 4.23 percent late on Friday, while benchmark 10-year Treasury notes yielded 3.01 percent, from 2.99 percent. (Additional reporting by Rodrigo Campos, Edward Krudy, Steven C. Johnson, Frank Tang and Chris Reese; Editing by Dan Grebler)