LONDON – World shares and commodities fell on Monday as a recent run of downbeat corporate reports cast a shadow over the economic growth outlook and markets awaited the impact of a huge U.S. hurricane.
All U.S. stock markets were shut in the first weather-related closure for 27 years, and they may close again on Tuesday as forecasters say the storm could be the largest to hit the mainland in American history.
U.S. stock index futures, which traded as usual, were down around 0.3 to 0.6 percent in line with falls seen across major European markets as renewed uncertainty over Spain and Greece put the euro and peripheral bond markets under pressure.
The broader MSCI world equity index <.MIWD00000PUS> lost 0.25 percent to 327.85 points - on track for its worst monthly performance since May as doubts grow over the effect of the latest round of central bank efforts to boost activity.
Positive surprises, including third quarter U.S. and British growth data and signs of stabilization in China, have failed to persuade investors that the world economy can achieve lasting growth as major global companies have forecast weak revenues.
"Risk aversion is rising in all markets, and investors are increasingly focusing on slow global economic growth," said Eugen Weinberg, head of commodities research at Germany's Commerzbank in Frankfurt.
The FTSE Eurofirst 300 index <.FTEU3> of top European shares fell 0.4 percent to 1,092.75 points and the euro zone's blue-chip Euro STOXX 50 index <.STOXX50E> was down 0.8 percent to 2,475.29 points.
EURO ZONE PROBLEMS
In Europe, the common currency slipped against the dollar on rising uncertainty over whether Greece would agree to a deal on austerity and with no sign of when Spain might request aid.
Spain's problems appear to be worsening after retail sales in September were reported to be falling at their fastest pace in at least six years following a rise in sales tax.
In Greece, international lenders are refusing to make any further concessions to the government over new labor laws, stalling a deal to release desperately needed funds from the nation's bailout deal.
"Greece has come back to the radar and along with Spain, it poses a slight negative for the euro," said Jeremy Stretch, head of currency strategy at CIBC World Markets.
The euro was down 0.25 percent at $1.2902, close to Friday's two-week low of $1.2882, with volumes expected to taper off as traders in New York stay at home.
Italian political risks were also rising again after former premier Silvio Berlusconi threatened to bring down the government of Mario Monti.
"Berlusconi's rant perhaps highlights the less than stable nature of Italian politics and reinjects some degree of political risk into (Italian government bonds)," said Richard McGuire, rate strategist at Rabobank.
Italian 10-year government debt yields were up 9 basis points at 5.0 percent, with the bonds underperforming even their Spanish counterparts, where yields were 4.5 basis points higher at 5.66 percent.
German government bonds also hit two-week highs, sending 10-year yields down 5 basis points to 1.48 percent, as the weakness on equity markets added to the demand for less risky assets.
"We've got very reduced liquidity, with the U.S. deemed to be shut for the rest of the day so people are biding their time," one fixed income trader noted.
The dollar steadied at 79.65 yen, off a four-month high of 80.38 touched on Friday, before a Bank of Japan monetary policy decision on Tuesday. Markets expect the BOJ to take further easing measures.
If the BOJ does ease, it will be the first time the central bank has acted for two consecutive months since 2003.
In oil markets, all eyes were on Hurricane Sandy, which has forced the closure of several big refineries along the east coast of the United States.
"With refineries cutting runs, we're likely to see a build-up in crude stocks which could be driving bearish prices at the moment," said Michael Creed, an economist at National Australia Bank in Melbourne.
Brent crude oil initially fell $1.04 to $108.51 a barrel on the possible impact of the hurricane, before recovering to be slightly firmer at around $109.93. U.S. crude was down 35 cents at $85.93.
Oil analysts say Sandy is likely to depress U.S. oil consumption as commuting and road transport fall and flights to and from East Coast airports are cancelled.
Commodities were also under pressure from speculation that rising evidence of weak corporate earnings around the world mean demand would slow. London copper fell 1.5 percent to $7,705 a metric ton (1.1023 tons).
(Additional reporting by Anirban Nag and Kirsten Donovan; Editing by David Stamp)