World Stocks Fall on Anxiety Over Growth Prospects

World markets tumbled Wednesday as investors fretted about the U.S. economic recovery after a downbeat set of trade figures and a warning from the Federal Reserve that growth was slowing.

The dollar however enjoyed one of its best days in weeks against the euro as investors sought out the sanctuary of the U.S. currency.

In Europe, the FTSE 100 index of leading British shares closed down 131.20 points, or 2.4 percent, to 5,245.21 while Germany’s DAX fell 132.18 points, or 2.1 percent, to 6,154.07. The CAC-40 in France ended 102.29 points, or 2.7 percent, lower at 3,628.29.

The selling in Europe became more pronounced when Wall Street joined the fray — the Dow Jones industrial average was down 224.32 points, or 2.1 percent, at 10,419.33 around midday New York time while the broader Standard & Poor’s 500 index slid 27.75 points, or 2.5 percent, to 1,093.31.

The main reason behind the fall was waning enthusiasm to the Fed’s decision Tuesday to reinvest the annual proceeds from maturing mortgage backed securities into the U.S. government bond market in an attempt to drive down borrowing costs and help the economy refind its footing. In the cold light of day, investors are worried that the measures don’t amount to much — most economists reckon it’s only worth just over $10 billion a month.

“The Federal Reserve yesterday bowed to the inevitable, but only just,” said Jeremy Batstone-Carr, director of private client research at stockbrokers Charles Stanley.

The Fed’s new plan came as it kept its benchmark interest rate unchanged below 0.25 percent and warned that “the pace of recovery in output and employment has slowed in recent months.” However, the rate-setting committee is not united — Thomas Hoenig continues to insist that the U.S. economy does not need any more help from the central bank than it already has.

The rate-setting panel’s majority latest view on the U.S. economy was anticipated after a run of worse than expected economic data stoked fears about the pace of the U.S. recovery from recovery.

In fact, it’s been the major market theme over the last few weeks, ratcheting up expectations that the Fed would have to do more to stop the U.S. economic recovery from grinding to a halt.

A much higher than anticipated U.S. trade deficit for June further weighed on sentiment. A government report showed that the deficit swelled to a 21-month high of $49.9 billion in June on a combination of higher imports and lower exports. The consensus in the markets was that the deficit would barely rise from May’s $42 billion.

The fear in the markets is that the trade data for June will mean that the U.S. economy grew even slower than thought — analysts now think that the U.S. economy grew by even less than the 2.4 percent annualized rate recently estimated.

“Combining the bigger-than-expected trade deficit with other weak data suggests that Q2 growth was only 1.2 percent… placing the economy on even shakier ground than it seemed, and underlining why the Fed has shifted towards an easing bias,” said Nigel Gault, chief U.S. economist at IHS Global Insight.

Despite all this downbeat U.S. economic news, the dollar has returned to favor against the euro as investors’ appetite for risk diminished — demand for dollars rises in this environment because of the currency’s assumed safe haven status.

Further weighing on the market’s appetite for risk was the news that China retail sales are not growing as fast as anticipated — at first glance, China’s annual increase of 17.9 percent in July looks impressive, but it was below the 18.5 percent consensus in the markets.

The retail sales figures came a day after trade figures showed imports growing by less than expected too — that’s a concern because the hope is that Chinese consumption would help cushion the blow to the world economy from lower U.S. growth.

“These fears of a continued slowdown in China could weigh on risk appetite in the short term and have seen the dollar continue to rebound,” said Michael Hewson, an analyst at CMC Markets.

By late afternoon London time, the euro was down 2.2 percent at $1.2888, its first venture below $1.30 this month.

Though rebounding against the euro, the dollar continues to suffer against the yen because the Japanese currency is often considered even more of a safe haven asset.

Earlier, the strength of the yen hit Japanese shares hard and the Nikkei 225 stock average closed down 258.20 points, or 2.7 percent, at 9,292.85. The worry is that the rise in the yen will make life tough for Japan’s high-value exporters — among the losers in Tokyo, Sony Corp. slid 2.8 percent and Nissan Motor Co. tumbled 3.6 percent.

By late afternoon London time, the dollar was 0.2 percent lower at 85.31 yen, above the earlier 15-year low of 84.71 yen, which was struck after Tokyo’s stock markets closed.

Currency traders will now be on the lookout for any intervention in the markets by the Japanese monetary authorities to halt the continuing rise in the value of the yen — after all, they have been more prone to get directly involved than their counterparts in the U.S. or in Europe. Finance minister Yoshihiko Noda once again said he was monitoring developments closely.

Elsewhere, South Korea’s Kospi lost 1.3 percent to 1,758.19, Australia’s S&P/ASX 200 dropped 1.9 percent to 4,455.50 and Hong Kong’s Hang Seng shed 0.8 percent to 21,294.54.

However, the Shanghai Composite Index gained 0.5 percent to 2,607.50 despite the retail sales figures, as investors picked up bargains following a big loss the day before.

Benchmark crude for September delivery was down $2.09 to $78.16 a barrel in electronic trading on the New York Mercantile Exchange.

PAN PYLAS, AP Business Writer LONDON