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Weak U.S. data sends dollar, equities lower

Traders work on the floor of the New York Stock Exchange February 3, 2014. REUTERS/Brendan McDermid

By Herbert Lash

NEW YORK (Reuters) - A weaker-than-expected report on U.S. factory activity pushed global equity markets and the dollar lower on Monday, undermining investor sentiment already under pressure from concerns about emerging markets.

U.S. stock indices added to losses, the dollar fell to its lowest against the Japanese yen since late November and the yield on the benchmark 10-year U.S. Treasury note fell to its lowest since early November after release of the ISM factory sector report.

MSCI's all-country world equity index fell 0.72 percent while the pan-European FTSEurofirst 300 index of leading regional shares closed down 1.5 percent. MSCI's emerging markets index fell 0.9 percent to its lowest since August, a decline that was less of a fall than developed markets.

U.S. manufacturing grew at a substantially slower pace in January as new order growth plunged by the most in 33 years, driving overall factory activity to an eight-month low, the Institute for Supply Management said.

ISM's index of U.S. factory activity fell to 51.3 last month - its lowest since May - from a revised 56.5 in December. The reading was well below a median forecast of 56 in a Reuters poll of economists. Readings above 50 indicate expansion.

Stocks on Wall Street fell 1 percent at one point and gold prices rose about 1.6 percent as the ISM reading rattled investors, even as European manufacturers enjoyed a solid start to the year.

Slower growth in the Chinese goods-producing sectors, coupled with the U.S. data, raised concern about the global economy's health.

"The data was very weak across the board, it's hard to find any good news in there. It looks like a general slowdown, though you don't know how much of this is weather-related," said Paul Zemsky, head of asset allocation at ING Investment Management in New York, referring to the ISM report.

"Combine that with the fact emerging market currencies continue to sell off, and things don't look too good for the market now," he said. "Somewhere between now and 1,700 (on the S&P) there's a big buying opportunity, but people need to see some stability in emerging currencies."

The Dow Jones industrial average fell 116.5 points, or 0.74 percent, to 15,582.35. The S&P 500 lost 13.53 points, or 0.76 percent, to 1,769.06 and the Nasdaq Composite dropped 37.073 points, or 0.9 percent, to 4,066.805.

The dollar index, a basket of currencies, fell 0.26 percent to 81.100 and the euro gained against the dollar 0.17 percent 1.310. The dollar fell 0.66 percent to 101.36 yen.

U.S. Treasuries yields fell to their lowest since early November, with the 10-year note rising 11/32 in price to yield 2.624 percent.

"Overall this is a weak number and it does suggest some dramatic slowing in economic activity," said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities in New York, about the ISM report.

"One can put most of this down to the unseasonably cold weather that we've had over the past two months, we've seen that in other economic reports. The big question is whether that proves to be temporary and we think that it will," he said.

Russia's ruble steadied above recent five-year lows after PMI data showed Russian manufacturing shrinking for the third month in a row. The Turkish lira was little changed after a report showed consumer prices in Turkey rose sharply in January, driven higher by surging food prices.

Gold for April delivery rose 1.7 percent to $1,261 an ounce.

Brent crude oil dropped to a two-week low below $106 a barrel as weak factory data from China stoked concerns about demand, but violence in Iraq and Syria limited the fall.

Brent slipped 73 cents to $106.07 a barrel by 1453 GMT, having sunk to $105.70 in earlier trade. U.S. oil fell 96 cents to $96.53.

(Reporting by Herbert Lash, Additional reporting by Marc Jones; Editing by Chizu Nomiyama)