China slowdown worries hit world stocks, commodities

By Nigel Stephenson

LONDON (Reuters) - Concern about a potential slowdown in China hit global stocks and commodities on Monday while signs of disagreement between major economic powers on the need for extra stimulus further clouded the outlook.

Shares fell in Asia and Europe as investors worried a closely watched gauge of Chinese manufacturing, due on Tuesday, could indicate activity was contracting.

The Australian dollar fell half a percent to a seven-month low of $0.8826, reflecting Australia's dependency on Chinese appetite for its natural resources exports.

Mining company stocks fell in Europe on fears over Chinese demand. British food retailer Tesco, whose shares fell more than 8 percent after it further cut its first-half profit forecast, also took its toll.

"News out of China where finance minister Lou poured cold water on hopes that China will take further measures to boost its economy is souring sentiment for stocks," Markus Huber, senior analyst at Peregrine & Black, said.

Wall Street looked set to open lower, with stock index futures pointing to losses.

Chinese steel and iron ore futures hit record lows, down 4 percent, plagued by excessive supply and demand worries.

Brent crude oil fell below $98 a barrel and three-month copper on the London Metal Exchange was down 1.5 percent at $6,733 a tonne.

"The big concern out there seems to be China. Everybody is getting increasingly worried about the economy and the real estate sector and there are question marks about when we might get additional policy stimulus (from China)," said Nic Brown, head of commodity research at Natixis.

The closely-watched Chinese manufacturing number will be released on Tuesday, as will other global flash business activity surveys for September.

Group of 20 finance ministers and central bank chiefs meeting in Australia at the weekend did little to settle investor nerves. They said they were close to adding $2 trillion to the global economy, but there were signs of disagreement.

U.S. Treasury Secretary Jack Lew cited "philosophical" differences with some of his European counterparts over the need for short-term stimulus.

German Finance Minister Wolfgang Schaeuble stressed Germany's long-held view that structural reform and strict budget controls were needed.

Chinese Finance Minister Lou Jiwei told the meeting Beijing would not dramatically alter its economic policy because of any one indicator, China's central bank said in a statement.

The G20 finance leaders also warned low interest rates and low asset price volatility could lead to a build-up of excessive risk.

DRAGHI

European Central Bank President Mario Draghi will speak in the European Parliament on Monday, days after a lukewarm take-up of cheap loans under the bank's latest scheme to push more money into the euro zone financial system.

The pan-European FTSEurofirst stock index was down 0.3 percent at 1,397.85 points.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped about 1.2 percent. Japan's Nikkei stock average ended down 0.7 percent, after it marked its highest closing level since 2007 on Friday.

The dollar, which has racked up its longest weekly winning streak against a basket of currencies since the its free float in 1973, gave up ground against major rivals, with the notable exception of the Australian dollar.

The euro traded 0.1 percent higher at $1.2840, after touching a 14-month trough of $1.2826 in Asian trade, while the yen was almost flat at 109.02 to the dollar.

(Additional reporting by Lisa Twaronite in Tokyo, Patrick Graham, Atul Prakash and Harpreet Bhal; Editing by Catherine Evans/Ruth Pitchford)