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Europe set to fall again as growth gloom hits stocks

Sep 4, 2011, 11:47 p.m.
Trader react at their desks at the Frankfurt stock exchange August 24, 2011. REUTERS/Alex Domanski

By Alex Richardson

SINGAPORE (Reuters) - European shares were set for sharp losses on Monday after Asian stocks slid and the euro hit a three-week low against the dollar, as fears of a renewed U.S. recession and sustained worries about the euro zone debt crisis prompted investors to sell riskier assets.

U.S. employment data on Friday showed the world's biggest economy failed to create any jobs last month for the first time in nearly a year.

"Even if you take out the effect from the Verizon strike, it is still a lousy number and people are concerned that growth is not there any more," said Dominic Schnider, head of commodity research of UBS Wealth Management in Singapore.

Europe, meanwhile, faces a string of political and legal tests this week that could hurt efforts to resolve its sovereign debt crisis and increase pressure on governments to try more radical solutions.

"In this atmosphere, foreign investors are likely to remain risk-averse and inactive," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co in Tokyo.

Euro STOXX 50 futures fell 1.9 percent, while index futures for Germany's DAX and France's CAC-40 were down the same amount. Financial bookmakers called the FTSE 100 to open down 1.3 percent.

Demand for safer assets drove up Japanese government bonds, while the yen firmed a touch and gold lost only a little ground after spiking on Friday.

Tokyo's Nikkei share average fell 1.9 percent, while MSCI's broadest index of Asia Pacific shares outside Japan fell 3 percent, leaving it nearly 18 percent below its April high.

Energy and materials, both sensitive to expectations of industrial demand, and technology, affected by Western demand for Asian electronics, were the hardest hit sectors in the MSCI index, shedding between 3.5 and 4.5 percent.

OBAMA SPEECH

Stocks on Wall Street and other major exchanges closed down more than 2 percent on Friday after the U.S. Labor Department report, which also sparked a rally in safe haven investments such as gold, Treasuries and the Swiss franc.

U.S. S&P stock futures fell 0.7 percent in Asia, extending Friday's weakness, although Wall Street is closed on Monday for the Labor Day holiday.

Investors are looking ahead to a speech to Congress by President Barack Obama on Thursday for details on how he plans to boost the economy.

"Some don't expect much in the way of concrete measures from Obama. There won't be any magic rebound," said Fumiyuki Nakanishi, strategist at SMBC Friend Securities in Tokyo.

The worsening outlook also piles pressure on the U.S. Federal Reserve to embark on a third round of money creation via bond purchases, known as quantitative easing, which could cheapen the dollar and encourage buying of riskier assets.

A year ago a signal from Fed Chairman Ben Bernanke that a second bout of quantitative easing, dubbed QE2, was in the pipeline triggered a rally that saw the S&P 500 rise about 30 percent from August to May.

This time, however, some analysts are doubtful that any "QE3" program would have a similar effect and the central bank itself appears more reluctant.

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