Surprise Drop in Jobless Soothes Jumpy Markets

European stock markets and Wall Street futures pared losses Friday after a surprise fall in the U.S. unemployment rate, but investors remained worried that the debt crisis enveloping Greece may spread to other vulnerable countries in Europe, such as Portugal.

In Europe, the FTSE 100 index of leading British shares was down 49.72 points, or 1 percent, at 5,089.59, while Germany’s DAX fell 37.45 points, or 0.7 percent, to 5,495.79. The CAC-40 in France was 82.13 points, or 2.2 percent, lower at 3,607.12.

All three indexes had been even lower earlier but the news that the U.S. unemployment rate dropped unexpectedly in January to 9.7 percent from 10 percent even as employers shed 20,000 jobs helped shore up investor confidence about the pace of the U.S. recovery.

Wall Street futures also trimmed their losses after the data — Dow futures were down only 5 points, or 0.1 percent, at 9,974 while the broader Standard & Poor’s 500 futures fell 0.7 point, or 0.1 percent, at 1,061.

The drop in the U.S. unemployment rate came as a welcome relief to markets battered over the last couple of days by mounting worries about the debt crisis afflicting Europe.

“It’s been a dismal 24 hours for global markets as stock markets, commodities and currencies have fallen around the world, while bond default risk has soared, as investors have fled risky assets into the relative safety of the dollar,” said Michael Hewson, an analyst at CMC Markets.

Those concerns continue to dog stock markets in Greece, Portugal and Spain disproportionately. Greece’s main composite index was down another 3.6 percent, while Portugal’s PSI was 1.6 percent lower — helped off lows as fears ebbed that the government will fall as a result of its planned austerity program. Spain’s IBEX fell 1.4 percent.

“It has been a worry for Greece for weeks but it is now spreading like wildfire, driving equity markets lower, causing further concerns both about medium-term growth prospects and in currency markets,” said Kit Juckes, chief economist at ECU Group.

The question is whether these governments can deliver the deficit cuts they have promised. The Greek plan, which has been cautiously backed by the European Commission and the European Central Bank, is to get the budget deficit down from around 12.7 percent of the country’s gross domestic product in 2009 to below 3 percent in 2012.

But with strikes looming — customs and tax officials have already begun a 48 hour strike in protest at the planned austerity measures — investors remain skeptical at best.

All this is hitting the euro hard as investors think a bailout of the periphery countries is becoming more likely by the European Union.

The euro fell below $1.37 for the first time since May last year, but recovered after the U.S. jobs data prompted a modest improvement in risk appetite. While the euro has recently been undermined by concerns about credit problems in its peripheral members, the dollar has attracted support through its supposed safe haven status during times of risk aversion.

By midafternoon London time, the euro was unchanged on the day at $1.3730.

Commodity and energy prices have also been hit hard by the meltdown in risk assets — benchmark crude for March delivery was down a further 28 cents at $72.86 a barrel in electronic trading on the New York Mercantile Exchange after losing $3.84 overnight, while gold fell $9.10 ounce to $1,053.30.

The focus at this weekend’s Group of Seven meeting of finance ministers and central bankers from the world’s leading industrialized economies has suddenly become a point of interest in the markets — with the G-20 now the world’s main forum for economic cooperation, the G-7 was widely thought to be an anachronism.

Earlier in Asia, stock markets responded to the massive falls recorded in the previous session in Europe and the U.S., where the Dow Jones industrial average slid 2.6 percent, its worst performance in nine months.

Japan’s benchmark Nikkei 225 sank 2.9 percent, or 298.89 points, to 10,057.09, while China’s Shanghai Composite Index fell 1.9 percent, or 55.91, to 2,939.40. Hong Kong’s Hang Seng buckled 3.3 percent to 19,665.08.

Elsewhere, South Korea’s Kospi slid 3.1 percent to 1,567.12, Taiwan’s market dived 4.3 percent and Australia’s S&P/ASX benchmark dropped 2.3 percent.

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AP Business Writer Joe McDonald in Beijing contributed to this report.

2/5/2010 9:14 AM PAN PYLAS, AP Business Writer LONDON