Europe drags on factory data; Ebola stirs U.S. caution

By Chuck Mikolajczak

NEW YORK (Reuters) - Stock markets worldwide launched the fourth quarter on a negative note on Wednesday, as tepid manufacturing data weighed on European markets and the first confirmed case of Ebola in the United States added to growing volatility in U.S. equities.

Weak economic data, ongoing conflicts in Iraq and Russia, and growing unrest in Hong Kong have contributed to overall expectations that markets will get increasingly rocky in coming months.

"If you spent the entire summer wishing there was more volatility in the market, your dream has come true," said Art Hogan, chief market strategist at Wunderlich Securities in New York. "You have multiple global macro concerns, a new Ebola scare, beginning of a new quarter and on the very short horizon, earnings season starting."

Bond markets drew safe-haven bidding, with the benchmark U.S. 10-year Treasury's yield falling to 2.412 percent, the lowest in nearly a month. The yield on Germany's 10-year Bund declined to 0.906 percent, not far from record lows reached about a month ago.

The Dow Jones industrial average was down 246.83 points, or 1.45 percent, at 16,796.07. The Standard & Poor's 500 Index was down 24.32 points, or 1.23 percent, at 1,947.97. The Nasdaq Composite Index was down 70.59 points, or 1.57 percent, at 4,422.80.

MSCI's global index of equities was down 0.9 percent after a 3 percent drop in September. The pan-European FTSEurofirst 300 equity index closed down 0.9 percent after final September purchasing managers numbers from France, Germany and the euro zone as a whole highlighted the instability of the European recovery.

U.S. purchasing managers' data was also weaker than expected, though still showed growth in factory activity.

Wall Street was lower, continuing its recent weakness. Airline and hotel stocks dropped in a knee-jerk reaction to the first confirmed U.S. case of Ebola, a development that also resulted in sharp rallies in drugmakers with treatments for the disease. An airline index was on track for its worst day since January.

The dollar was little changed near a four-year high, helping commodity prices bounce from a sell-off in the prior session. Brent crude oil last traded at $95.24, up 0.6 percent on the day. U.S. crude was at $92.02, up 0.9 percent.

The euro zone data, along with a report on slowing euro zone inflation on Tuesday, underscored the contrasting monetary policy outlooks of the U.S. Federal Reserve and the European Central Bank. The ECB meets Thursday, and its accommodative stance has had investors favoring the dollar over the euro.

The euro, down 0.2 percent at $1.2609, continued to inch lower, but managed to pare declines to climb back above the $1.26 mark, a level it had held for two years until Tuesday.

Oil prices were helped by Chinese PMI data, which stayed at 51.1, modestly above the 50 level that separates growth from contraction and just above the 51 forecast.

(Additional reporting by Yasmeen Abutaleb; Editing by Meredith Mazzilli)