Lackluster factory data hits world stocks, dollar strong

By Nigel Stephenson

LONDON (Reuters) - Stocks worldwide began the fourth quarter on a negative note on Wednesday, as lackluster economic data and civil unrest in Hong Kong kept investors cautious before a European Central Bank meeting later this week.

The dollar held close to a four-year high, helped by the weak factory activity data, pushing commodity prices lower.

The pan-European FTSEurofirst 300 equity index was down 0.2 percent after final September purchasing manager (PMI) numbers from France, Germany and the euro zone as a whole underlined the fragility of the European recovery.

Sales warnings from UK supermarket J Sainsbury and French cable maker Nexans fueled worries over European corporate results.

Manufacturing stumbled across most of Asia last month, helping push Asian shares lower.

U.S. stocks looked set for a lower opening, according to stocks index futures .

The numbers, along with slowing euro zone inflation data on Tuesday, highlighted the divergent monetary policy outlook between the U.S. Federal Reserve on the one hand and the European Central Bank and Bank of Japan on the other.

The ECB meets on Thursday while investors will keep a close eye on U.S. jobs data on Friday for clues to when the Fed might raise interest rates.

"Since the Fed meeting on Sept. 17, we've seen a 'risk-off' trade, with the fixed income market playing its role of 'safe-haven' while equities and commodities have been slipping in negative territory," said Ycap Asset Management's head of quantitative strategies in Paris, Gregory Raccah.

Some investors took heart from the Chinese PMI, which stayed stuck at 51.1, modestly above the 50 level that separates growth from contraction.

MSCI's main index of Asia-Pacific shares outside Japan fell 0.2 percent. In Tokyo, the Nikkei stock index closed 0.6 percent lower. Big Japanese manufacturers were slightly more optimistic in the third quarter, but service-sector sentiment worsened, a central bank survey showed.

Chinese stock markets were closed for a national holiday but investors warily monitored thousands of pro-democracy protesters in Hong Kong, where demonstrations spread.

The dollar, riding high in recent weeks, topped 110 yen for the first time in six years. The Japanese currency was last down 0.21 percent at 109.90 yen.

The euro, which plumbed a two-year low under $1.26 on Tuesday after the euro zone inflation data was seen making ECB monetary stimulus more likely, was down 0.3 percent at $1.2588.

PAYROLLS

Analysts said the U.S. jobs data would be crucial for the dollar's near-term direction.

"Friday's non-farm payrolls will be key, as it could raise rate hike expectations another notch," said Barclays Bank chief Japan FX strategist in Tokyo, Shinichiro Kadota.

Dollar strength and concern over growing supply have weighed heavily on Brent crude oil lately. The Chinese PMI data lifted it towards $95 a barrel on Wednesday. It last traded at $94.77, up 0.1 percent on the day.

"The Chinese data is slightly supportive, but Brent is solidly in a downtrend and that could continue," said Tony Machacek, an oil broker at Jefferies Bache in London.

Falling oil prices have hit Russia's rouble. The currency slipped to 44.43 against a dollar-euro basket at Wednesday's opening, moving beyond the level of 44.40 at which the central bank automatically starts unlimited interventions to defend the currency.

The strong dollar also took its toll on gold. The metal traded at $1,209.31 an ounce, having hit a nine-month low on Tuesday.

(Additional reporting by Lisa Twaronite in Tokyo and Blaise Robinson in Paris; Editing by Catherine Evans)