US, European stocks fall despite stronger US data as investors question rally's sustainability
By: DAVID McHUGH
Associated Press
09/02/09 1:00 AM EDT
LONDON — World stocks sank Tuesday as worries about the sustainability of the past few months' rally outweighed upbeat U.S. economic data.
In Germany, the DAX closed down 2.4 percent at 5,327.29 while Britain's FTSE 100 dropped 1.8 percent to 4,819.7. In France, the CAC-40 lost 2.4 percent to 3,583.44.
Wall Street rose after stronger manufacturing data but stocks couldn't hold their gains. The Dow was trading down 1.5 percent at 9,353.9 and the Standard & Poor's 500 fell 1.6 percent to 1,004.17 in midday trading New York time.
Indexes had ticked up after the Institute for Supply Management's manufacturing indicator rose to 52.9 in August — up from 48.9 in July and well above analysts' expectations for 50.5 — indicating the sector grew for the first time since January 2008.
Investors were expecting the improvement, and many may have decided to take some money out of the market, playing it safe ahead of the government's August employment report, which comes out Friday.
"The market's priced all of this in, and a lot more, quite frankly, I can't imagine a piece of fundamental information that could meaningfully impact this market upward or downward," said Jeff Buetow, managing partner at Innealta Portfolio Advisors.
The rise in stocks over recent weeks has stalled amid concerns the rally may have gotten ahead of economic fundamentals. In Europe, the mood was darkened by data showing unemployment in the 16 nations that use the euro rose to 9.5 percent in July — a 10-year high — from 9.4 percent in June despite recent upbeat economic indicators. The unemployment data reminded investors that consumer spending — the basis for many companies' profits — could remain weak for some time.
Jennifer McKeown, economist at Capital Economics, said that while the rise was moderate, "as unemployment tends to lag behind developments in the wider economy, we still expect to see further increases in the coming quarters."
"Accordingly, the recent recovery in consumer spending may not be sustained."
In Asia, most markets rebounded modestly from losses the day before, with China's key index edging up. Monday's drop in Shanghai's volatile market triggered a wave of selling in markets around the world.
But Tuesday the mood was steadier in Asia, helped by data showing that China's manufacturing growth accelerated in August to its fastest rate this year.
"Panic selling has stopped, at least for today," said Francis Lun, general manager of Fulbright Securities Ltd. in Hong Kong. "Investors are trying to regain direction after yesterday's sell-off."
The Shanghai Composite Index rose 15.98 points, or 0.6 percent, to close at 2,683.72, following a 6.7 percent plunge Monday that took it to its lowest level in three months.
Hong Kong's Hang Seng climbed 0.8 percent, while Tokyo's Nikkei 225 stock average rose 0.4 percent. Markets also rose in South Korea, Taiwan, Singapore and Australia, but fell in India, the Philippines and New Zealand.
Chinese investors remained jittery after seeing shares drop nearly 10 percent in the previous two sessions on heavy selling of big company shares due to fears the government might pull back on the lavish bank lending that has helped push prices sharply higher this year.
The Shanghai benchmark is still about 50 percent higher so far this year, but it has fallen sharply after surging more than 80 percent by Aug. 4. Some have dubbed the bleak weeks since then "Black August."
Oil rose dipped $1.08 to $68.88 in electronic trading on the New York Mercantile Exchange. The dollar fell slightly to 93.06 yen while the euro fell 0.75 percent to $1.4225.
___
Associated Press Writer Elaine Kurtenbach in Shanghai contributed to this report.
