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Global economic fears knock markets down

By Pan Pylas

Associated Press

Published: Wednesday, Nov. 23 2011 4:40 a.m. MST

A screen shows the Hong Kong's Hang Seng Index slid 2.1 percent to 17,864.43 at a bank in Hong Kong Wednesday Nov. 23, 2011. World stocks fell Wednesday after a survey showed China's factories are cutting production and the U.S. lowered its third quarter growth estimate, adding to pessimism from Europe's simmering debt crisis.

Kin Cheung, Associated Press

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LONDON — Global stocks fell Wednesday after more evidence emerged that the global economy is faltering fast and that the eurozone is heading for a recession as the debt crisis spreads to the bigger economies like Italy and Spain.

Following figures Tuesday that showed the U.S. economy grew less than anticipated in the third quarter, the bad news has piled up for investors. With China's economy suffering a fall in manufacturing activity as well, there are clear signs that the eurozone economy is heading back into recession and that's knocked sentiment in stock markets again.

The grim economic figures come amid ongoing stresses in Europe's debt crisis and mounting speculation that the U.S. may see its credit rating downgraded again in the not-too-distant future following lawmakers' failure to agree on a deficit reduction plan.

"There's certainly no shortage of negative news around at the moment," said Ben Critchley, a sales trader at IG Index.

In Europe, the FTSE 100 index of leading British shares was down 0.6 percent at 5,176 while Germany's DAX fell 0.4 percent to 5,516. The CAC-40 in France was 0.5 percent lower at 2,857.

Wall Street was poised for a lower opening, in its last trading day before the Thanksgiving holiday — Dow futures were down 1 percent at 11,136 while the broader Standard & Poor's 500 futures fell 1 percent to 1,170.

Even if a raft of U.S. economic data later surprises to the upside, analysts warned that the selling may continue.

"Ahead of U.S. markets closing for the holiday, the dominant theme may simply be one of cutting back risk," said Terry Pratt, an institutional trader at IG Markets.

The sense of an impending recession in the eurozone was evident in the findings of a closely watched survey from financial information company Markit. Its monthly survey showed the eurozone contracted for the third month running in November and that the deteriorating economic picture is not just confined to debt-stressed countries such as Greece.

Although its monthly composite purchasing managers index — a broad gauge of business activity — rose to 47.2 in November from 46.5, it remains below the 50 mark, the threshold between expansion and contraction.

Markit said Wednesday's survey suggests that eurozone is contracting at a quarterly rate of 0.6 percent in the fourth quarter and that the problems are increasingly spreading to Europe's two biggest economies, Germany and France.

Further grim news emerged with the announcement that eurozone industrial orders collapsed by a massive 6.4 percent in September from the previous month. Though this data is historically volatile — one big Airbus order can cause big swings — the figures provide further uncomfortable reading for politicians battling to get a grip on the debt crisis.

Analysts said the figures are likely to pile the pressure on the European Central Bank to cut interest rates again, possibly as soon as next month. In November, it reversed recent policy, cutting its benchmark interest rate by a quarter of a percentage point to 1.25 percent amid mounting worries over the state of the eurozone economy.

The euro unsurprisingly took a battering in the wake of the figures, plunging 0.9 percent to $1.3389.

Earlier, sentiment had been knocked by a manufacturing survey from HSBC indicating that China's industrial sector may be contracting. Its main manufacturing gauge fell to 48 in November from 51 in October — its sharpest fall since March 2009. As in the eurozone survey, any reading below 50 indicates contraction from the previous month.

Indications that the world's second biggest economy and one of the key engines of growth may not be as supportive to the global economy as it has over the past few years affected the Asian session badly.

Hong Kong's Hang Seng slid 2.1 percent to 17,864.43. South Korea's Kospi lost 2.4 percent to 1,783.10 and Australia's S&P/ASX 200 shed 2 percent to 4,051. Mainland China's Shanghai Composite Index fell 0.7 percent to 2,395.07, posting its sixth straight session of losses. Japanese stock markets were closed for a public holiday.

Oil prices tracked equities lower — benchmark oil for January delivery was down $2 to $96.01 a barrel in electronic trading on the New York Mercantile Exchange.

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Pamela Sampson in Bangkok contributed to this report.

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