By David Randall
NEW YORK (Reuters) - World equity benchmarks hit their lowest levels in a month on Wednesday as signs of a slowdown in U.S. economic growth and weak earnings in Europe fanned fears that the U.S.-China trade war could push the global economy into a recession.
In the United States, the ADP National Employment report showed private payroll growth was lower than expected in September, adding to concerns about softening economic growth. Global stock benchmarks tumbled Tuesday after a measure of U.S. manufacturing fell to its lowest level in more than 10 years, removing one of few remaining bright spots in the global economy just as Europe is seen as close to falling into recession.
"The weakening conditions in Europe and the slowdown in China, it's all adding up to the same thing essentially: worries that the global economy is slowing and giving investors reason to pause and take profits," said Robert Pavlik, chief investment strategist manager at SlateStone Wealth LLC in New York.
MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 1.60%, following broad declines in Europe that pushed benchmark indices to their lowest levels in a month. The FTSE 100 index <.FTSE> slipped 2%, the largest drop across European regions.
On Wall Street, the Dow Jones Industrial Average <.DJI> fell 494.42 points, or 1.86%, to 26,078.62, the S&P 500 <.SPX> lost 52.64 points, or 1.79%, to 2,887.61 and the Nasdaq Composite <.IXIC> dropped 123.44 points, or 1.56%, to 7,785.25.
Selling was triggered after the Institute for Supply Management's (ISM) index of factory activity, one of the most closely watched data on U.S. manufacturing, dropped to the lowest level since June 2009.
Markets had been expecting the index to rise back above the 50.0 mark denoting growth but the index dropped 1.3 points to a reading of 47.8 last month.
Graphic: Signs of a brewing recession - https://graphics.reuters.com/USA-ECONOMY/0100801801Z/index.html
Graphic: MSCI All Country World Index Market Cap - http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-MARKETS/010060TL1KC/index.html
"Historically, equity returns are worst when the ISM manufacturing drops from levels below the 50 threshold," said Patrik Lang, head of equity research at Julius Baer.
"Uncertainty around the U.S.-China trade war is obviously the main reason for the weakness, with companies exposed to global trade increasingly putting off investment decisions."
Concerns about the global economic outlook pushed investors into the perceived safety of bonds. Benchmark 10-year notes <US10YT=RR> last rose 13/32 in price to yield 1.5992%, from 1.644% late on Tuesday.
Euro zone bond yields inched up after another speech from outgoing ECB chief Mario Draghi calling for fiscal stimulus to boost the region's sluggish economy.
Gold rose to $1,486.46 per ounce <XAU=> from a two-month low of $1,459.50 hit on Tuesday on the back of a robust U.S. dollar.
Weak economic data weighed on oil prices, though U.S. crude was supported by industry data that showed an unexpected fall in inventories in the United States.
Brent crude <LCOc1> futures were last down 2.3% at $57.54 a barrel, while U.S. West Texas Intermediate (WTI) crude <CLc1> fell 2% to $52.57 per barrel.
(Reporting by David Randall; Editing by Nick Zieminski, Alistair Bell and David Gregorio)