LONDON — Mounting concerns over the state of the U.S. economy, political uncertainty in Japan and Greece's debt crisis weighed on stock markets Thursday, particularly in Europe and Asia.
Though U.S. stocks stabilized after Wednesday's heavy selling, investor sentiment remained fragile as investors geared up for Friday's U.S. nonfarm payrolls data, which often set the stock market tone for a week or two.
Expectations for those payrolls numbers were lowered sharply Wednesday by the news from the ADP payrolls firm that private employers in the U.S. only added 38,000 jobs during the month. That was far lower than the 175,000 expected in the markets, reinforcing fears that the U.S. economic recovery is quickly running out of steam.
Weekly jobless claims data on Thursday did little to lift the mood. Though the number of claimants fell 6,000 last week to 422,000, the headline number remains historically high.
Before this week's indicators, the markets were expecting a 200,000 improvement in May, slightly down on April's 244,000 increase.
"Don't be too surprised if we don't see a triple-digit gain in nonfarm payrolls tomorrow," said Jennifer Lee, senior economist at BMP Capital Markets.
The slide in expectations left a mark on stocks.
In Europe, where indexes had already fallen the day before, the FTSE 100 index of leading British shares was down another 0.8 percent at 5,883 while Germany's DAX fell 1.4 percent at 3,911. The CAC-40 in France was 1.3 percent lower at 3,911.
In the U.S., the Dow Jones industrial average was down 0.1 percent at 12,277 soon after the open while the broader Standard & Poor's 500 index was flat at 1,315.
Further weighing on stock market sentiment Thursday was another downgrade of Greece's debt from Moody's Investor Services.
The downgrade pushed the country's credit rating deeper into junk status just as Greece is trying to wrap up negotiations for a vital fifth installment of international bailout loans.
Moody's downgraded Greece by three notches from a B1 rating to Caa1 with a negative outlook on Wednesday and said the country's risk of default stood at 50 percent given uncertain growth prospects and increasingly difficult policy challenges.
Despite the constant stream of worries over Greece's debts, the euro has managed to recover somewhat this week, partly on the expectation that the country will get a second bailout to see it through 2013. By mid afternoon London time, it was up 0.8 percent at $1.4450, just shy of its earlier three-week high of $1.4458.
However, with Europe's debt crisis flaring up time and time again — not just in Greece, but in Ireland and Portugal, too — a number of analysts think the currency will soon start to falter.
"The euro's advance remains on a shaky footing however and we see the currency vulnerable to renewed negative headlines from the eurozone debt markets," said Vassili Serebriakov, currency strategist at Wells Fargo Bank.
Earlier in Asia, much of the attention centered on developments in Tokyo, where the country's Prime Minister Naoto Kan faced a no-confidence motion over his handling of Japan's triple disasters.
Though he won the vote, analysts said his victory could prove short-lived — Kan said he is willing to resign once the country's recovery kicks in.
Kan has been criticized for delays in construction of temporary housing for evacuees from the March 11 disaster, lack of transparency about evacuation information, and a perceived lack of leadership.
Japan's Nikkei 225 fell 1.7 percent to 9,555.04, as the leadership crisis hurt investor confidence.
Stock markets all over the region ended up lower, mostly because of Wednesday's dramatic declines on Wall Street.
South Korea's Kospi index ended down 1.3 percent at 2,114.20 while Australia's S&P/ASX 200 index shed 2.2 percent to 4,683.20.
Hong Kong's Hang Seng index fell 1.6 percent to 23,253.80, while mainland China's benchmark Shanghai Composite Index sank 1.4 percent to 2,705.18. The Shenzhen Composite Index of China's smaller, second exchange lost 1.5 percent to 1,105.95.
In the oil markets, a barrel of crude continued to oscillate in a fairly narrow range above and below $100. Benchmark oil for July delivery was up 18 cents to $100.47 a barrel in electronic trading on the New York Mercantile Exchange.
Pamela Sampson in Bangkok contributed to this report.