World shares slump, US dollar up

Stocks have tumbled overnight in the US and Europe, extending the slide in Asia yesterday on concern a recovery in global economic growth may falter after Japan's growth missed estimates and investment in China fell.

The Dow Jones Industrial Average dropped 2 per cent to 9135.34 and the Standard & Poor's 500 declined 2.4 per cent to 979.73. The Nasdaq Composite fell 2.8 per cent to 1930.84.

In Europe, the Dow Jones Stoxx 600 fell about 2 per cent to 224.23 and regional benchmarks dropped, with the U.K.'s FTSE 100 down 1.5 per cent to 4645.01, Germany's DAX 30 down 2 per cent to 5201.61 and France's CAC 40 falling 2.2 per cent to 3419.69.

China's Shanghai Composite Index tumbled 5.8 per cent yesterday after government figures showed foreign direct investment tumbled 35.7 per cent in July from a year earlier.

The Chicago Board Options Exchange Volatility Index, or VIX, known as Wall Street's fear gauge because it measures the cost of using options as insurance against declines in the S&P 500 Index, surged 14 per cent to 27.68.

Stocks fell on Wall Street even as reports suggested more so-called green shoots, with the National Association of Home Builders/Wells Fargo confidence index climbing to a 12-month high of 18. Still, that's on a scale where a reading below 50 signals those polled see poor conditions for housing.

Manufacturing in the New York region expanded this month, adding to signs the US economy is climbing out of recession. The Federal Reserve Bank of New York's general economic index rose to 12.1, the first growth since April last year.

Bank of America data showed the rate of US credit card defaults stabilised in July, suggesting consumers are managing to resume control of their finances. The so-called charge-off rate at the lender with the highest rate of defaults among credit card issuers eased to 13.81 per cent in July from 13.86 in June.

US banks tightened criteria on most types of loans in the second quarter and said stricter credit rules would continue through until the second half of next year, according to the Federal Reserve's quarterly Senior Loan Officer survey.

The Federal Reserve extended measures to revive credit for commercial real estate and loans to consumers and small businesses. The Term Asset-Backed Securities Loan Facility (TALF) for newly issued commercial mortgage-backed securities was extended to June 30, 2010, from Dec. 31 this year, while TALF programmes that reduce borrowing costs on securities backed by small business, consumer, credit card and auto loans were extended through March 31.

Shares of Lowe's Cos., the second-biggest US home improvement chain, dropped 10 per cent to US$20.47 after reporting earnings that missed estimates. Net profit tumbled 19 per cent to US$759 million.

Government bonds rallied in the US and Europe as stocks weakened. The yield on 10-year Treasury notes dropped 9 basis points to 3.48 per cent while the 30-year yield fell 9 basis points to 4.33 per cent.

The US dollar and the yen rose against the euro as investors eschewed riskier assets for the relative safety of the two biggest currencies. The British pound dropped against the greenback after a report showed home sellers in the U.K. lowered prices to try to make sales.

The euro weakened to $1.4083 in New York from $1.4203. The yen gained to 133.02 per euro from 134.84. The Japanese currency strengthened to 94.45 against the dollar from 94.94.

The Dollar Index, which measures the greenback against a basket of six currencies, rose 0.5 per cent to 79.29.

Commodities fell as doubts about the pace of global recovery stoked concern demand for raw materials and fuel will falter.

Crude oil sank to a two-week low as the US dollar gained and stock markets worldwide fell.

Crude oil for September delivery dropped 1.4 per cent to US$66.60 a barrel on the New York Mercantile Exchange.

Copper fell for a second day on concern its rally this year has pushed the price beyond levels justified by global demand and figures showed a drop in foreign investment in China, the world's biggest consumer of the metal.

Stockpiles of the metal climbed 11 per cent in the past month, according to the London Metals Exchange. Copper for delivery in three months fell 3.1 per cent to US$6,050 a metric ton on the LME, leading a slide in metals.

Copper futures for December delivery fell 2.3 per cent to US$2.7855 a pound on the New York Mercantile Exchange.

The stronger greenback also weighed on the price of gold, reducing demand for the precious metal as an alternative investment.

Gold futures for December delivery fell 1.8 per cent to US$931.30 an ounce on the New York Mercantile Exchange.

- BUSINESSWIRE