U.S. Markets closed

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 on Monday pushed global equity markets and the dollar lower, while adding to pressure on currencies and other assets in emerging markets.

U.S. stock indexes 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.

Emerging market stocks extended a two-week selloff as weak Chinese manufacturing and services data weighed, while the Turkish lira and South African rand weakened after policymakers poured cold water on expectations of higher local interest rates.

MSCI's all-country world equity index fell 1.36 percent while the pan-European FTSEurofirst 300 index of leading regional shares closed down 1.4 percent.

MSCI's emerging markets index fell 1.1 percent to its lowest since August, a rate that was less than the fall in developed markets. Still, the EM index is down 7.5 percent so far in 2014, compared with a 5 percent drop in the S&P 500.

U.S. manufacturing grew at a substantially slower pace in January as new order growth plunged 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 1.5 percent and gold prices rose about 1.5 percent as the ISM reading rattled investors, even as data showed European manufacturers had a solid start to the year.

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

"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 238.96 points, or 1.52 percent, at 15,459.89. The Standard & Poor's 500 Index was down 31.65 points, or 1.78 percent, at 1,750.94. The Nasdaq Composite Index was down 93.04 points, or 2.27 percent, at 4,010.84.

The dollar index, a measure of the greenback versus basket of currencies, fell 0.26 percent to 81.096 and the euro gained 0.24 percent against the dollar to 1.317. The dollar fell 0.88 percent to 101.13 yen.

U.S. Treasuries yields fell to their lowest since early November, with the 10-year note rising 15/32 in price, pushing its yield down to 2.6113 percent.

Dan Morris, global Investment strategist at TIAA-CREF in New York, where he helps oversee $564 billion in assets, said he was telling clients to keep calm and stay invested, as the decline in U.S. markets was not unexpected.

"I don't think anyone is too shocked this is happening, it was more a question of when and how significant. You were going to have a soft patch," Morris said.

U.S. stocks are likely to post high single-digit returns this year, with forward price-to-earnings ratios of about 15, slightly higher than the past quarter century, he said. But China, because of its size, could be a concern, he added.

Brazil's Bovespa index (.BVSP) fell 2.4 percent and its currency, the real, fell. Mexico's bolsa index fell just 0.3 percent.

Gold for April delivery rose 1.5 percent to $1,258.7 an ounce.

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

Brent slipped 33 cents to $106.07 a barrel. U.S. oil fell 85 cents to $96.64.

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