World stocks slump on outlook

US equities declined as homes sales, factory orders and consumer spending fell short of expectations, as did earnings by Procter & Gamble and Dow Chemical.

US household purchases, which account for about 70 per cent of the world's largest economy, were unchanged from May, according to figures from the US Commerce Department. Contracts to buy existing houses unexpectedly dropped for a second month and factory bookings fell more than twice as much as economists estimated, other reports showed.

"The data confirm the growth momentum doesn't look good," Bill Cheney, chief economist at John Hancock Financial Services in Boston, told Reuters.

"We originally expected the second quarter to be quite strong and then estimates kept coming down and now it looks like it will probably be revised even further down."

In late trading, the Dow Jones Industrial Average fell 0.30 per cent, the Standard & Poor's 500 Index declined 0.39 per cent and the Nasdaq Composite Index dropped 0.41 per cent.

Among the most active on Wall Street were Procter & Gamble and Dow Chemical, both declining after their earnings fell short of estimates.

Pfizer, however, surprised on the positive side, posting higher-than-expected quarterly results and standing by its longer-term profit view. That helped allay investor concern over looming generic drug competition, sparking a rally in health stocks.

Meanwhile, US car sales provided a mixed picture. General Motors and Ford reported US sales in July that trailed analysts' estimates as consumers concerned about the economy limited large purchases. Toyota and Nissan Motor topped expectations.

Toyota said US sales dropped 3.2 per cent to 169,224 vehicles. Adjusted for the difference in selling days, deliveries fell 6.8 per cent, less than four analysts' average estimate for a 7.4 per cent decline.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street's 'fear gauge', rose 0.68 per cent to 22.16.

The Stoxx Europe 600 Index closed at 262.06, barely changed from yesterday.

Across Europe, the U.K.'s FTSE 100 edged 0.01 per cent lower and France's CAC 40 slipped 0.12 per cent. Germany's DAX rose 0.25 per cent.

Among the most active stocks in Europe were BMW, Sky Deutschland and Deutsche Post.

US Treasuries gained, with the yield on the two-year note hitting a record low, amid expectations that the Federal Reserve might have to help bolster the world's largest economy.

The US economy lost jobs for a second consecutive month in July, according to economists before the Labor Department's payrolls report, due Friday.

"There is a lot of speculation the Fed might announce further monetary easing next week," Nick Stamenkovic, a strategist at RIA Capital Markets in Edinburgh, told Reuters.

The yield on the benchmark 10-year note fell six basis points, or 0.06 percentage point, to 2.90 per cent at 12.59pm in New York, according to BGCantor Market Data. The two-year note yield declined four basis points to 0.53 per cent. It earlier touched a record low 0.51 per cent.

The London interbank offered rate for three-month dollars fixed at 0.43469 per cent, down one basis point from 0.44469 per cent on Monday.

The US dollar dropped against the euro, the yen and sterling as a fall in benchmark yields to all-time lows hurt the appeal of dollar-denominated assets.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.40 per cent to 80.61. The index's decline below its 200-day moving average for the first time since January signals more declines, analysts said.

The euro hit a three-month high at US$1.3261.

The greenback fell to 85.69 yen, its weakest level since November.

The euro shed 0.6 per cent to 113.31 yen.

Sterling was up 0.2 per cent at US$1.5924.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 0.14 per cent to 276.46.

Oil rose, bolstered by a decline in the US dollar and expectations that US data would show a draw in oil inventories.

US September crude futures were up 63 cents to US$81.97 by 1330 GMT after hitting an intra-day high of US$82.47. The last time US crude traded above US$82 was on May 5. ICE Brent rose to US$81.70

Spot gold was bid at US$1,185.80 an ounce at 1501 GMT, against

US$1,181.25 late in New York on Monday. US gold futures for December delivery climbed US$3.80 to US$1,189.20 an ounce.

Traders in India, the world's biggest gold consumer, were buying before festivals as the stronger rupee made the metal cheaper for local buyers. Prices below US$1,180 were attractive for Indian buyers, traders told Reuters.

Also lending support, China's central bank said in a statement it would allow its banks to import and export more gold as part of a program to push forward the development of the country's market in the precious metal.

Among other precious metals, silver was at US$18.41 against US$18.34, platinum at US$1,586.15 an ounce versus US$1,586.75 and palladium at US$506 versus US$509.70.

Palladium hit an 11-week high at US$513 an ounce on Monday as appetite for industrial assets improved.

London copper prices declined. Three-month copper on the London Metal Exchange fell from the highest level in more than three months, dropping 1 per cent to US$7,435 a tonne by 0235 GMT.

Shanghai's benchmark third-month copper futures contract rose 0.2 per cent to 57,800 yuan a tonne. The most-active contract for November delivery gained 0.3 per cent to 57,740 yuan.