Factory data weighs on Europe; Ebola sparks U.S. caution

By Chuck Mikolajczak

NEW YORK (Reuters) - Stocks worldwide kicked off the fourth quarter on a down 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 figures worldwide, 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.

"We are in a new period of volatility and it's been developing for the last two or three months," said David Kotok, chairman and chief investment officer at Cumberland Advisors, in the Reuters Global Markets Forum on Wednesday.

Key bond markets saw safe-haven bidding, with the benchmark U.S. 10-year Treasury's yield falling to 2.42 percent, the lowest in nearly a month. Germany's 10-year Bund saw its yield decline to 0.91 percent, not far from record lows reached about a month ago. [US/]

MSCI's global index of equities was down 0.7 percent after a 3 percent drop in September. The pan-European FTSEurofirst 300 equity index was down 0.8 percent after final September purchasing managers (PMI) 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 string of weak trading. 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. A key airline index was on track for its worst day since July.

"I don't think the odds of this becoming a major issue is very high," said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.

"It impacts the short-term psyche, the traffic of airlines or even drug companies."

The dollar pulled back slightly from a four-year high, helping commodity prices bounce from a sell-off in the prior session. Brent crude oil last traded at $95.32, up 0.7 percent on the day. U.S. crude was at $91.97, up 0.9 percent.

The euro zone numbers, along with slowing euro zone inflation data 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 $1.2607, 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. [O/R]

The Dow Jones industrial average fell 150.6 points, or 0.88 percent, to 16,892.3, the S&P 500 lost 15.82 points, or 0.8 percent, to 1,956.47 and the Nasdaq Composite dropped 47.60 points, or 1.06 percent, to 4,445.79.

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