Global Markets: Shares drop on weak Europe data, dollar extends run

By Lewis Krauskopf

NEW YORK (Reuters) - Stocks around the world pulled back sharply on Thursday as fears of a global growth slowdown spread to Europe, while the U.S. dollar strengthened for a sixth session as central banks outside the country grow more cautious.

MSCI's gauge of stocks across the globe shed 0.95 percent, receding from two-month highs reached earlier in the week, as the pan-European STOXX 600 index lost 1.11 percent.

The European Commission sharply cut its forecasts for euro zone economic growth this year and next on expectations the bloc's largest countries will be held back by global trade tensions and domestic challenges.

Germany's DAX stock index tumbled 2.3 percent as industrial output in Europe's biggest economy unexpectedly fell in December for the fourth consecutive month.

"Even though we are in the midst of earnings season, the macro environment is really impacting global risk sentiment," said Katie Nixon, chief investment officer at Northern Trust Wealth Management in Chicago.

"Fears of a more dramatic slowdown in Europe are being joined with the fears around a slowdown in China. And the broad slowdown in global trade is having a direct impact on some of these economies and some of the results."

Adding to the growth jitters, White House adviser Larry Kudlow said in a television interview that there was a sizable distance to go in U.S.-China trade talks.

On Wall Street, the Dow Jones Industrial Average fell 246 points, or 0.97 percent, to 25,144.3, the S&P 500 lost 29.76 points, or 1.09 percent, to 2,701.85 and the Nasdaq Composite dropped 88.26 points, or 1.2 percent, to 7,287.02.

U.S. regional lender BB&T Corp will buy rival SunTrust Banks Inc for about $28 billion in stock, the biggest bank deal in about a decade. Shares of both banks rose.

The downgrade in European growth expectations filtered into currency markets, with the euro down 0.05 percent to $1.1354.

The dollar index, which weighs the greenback against a basket of six currencies, rose 0.03 percent, firming for a sixth session in a row.

The dollar's gains come despite the Federal Reserve's dovish shift on interest rates last week.

"When analyzing a currency's exchange rate, it should be relative to a peer. So far it seems none of these peers have a competitive advantage, making the dollar the less unloved currency," Hussein Sayed, strategist at forex broker FXTM said in a note.

U.S. Treasury yields fell for a third straight session. Benchmark U.S. 10-year notes last rose 11/32 in price to yield 2.6644 percent, from 2.704 percent late on Wednesday.

Oil fell after data showing a rise in U.S. inventories weighed on market participants already rattled by worries over the global economy.

U.S. crude sank 2.78 percent to $52.51 per barrel and Brent was last at $61.50, down 1.9 percent on the day.

(Additional reporting by Saqib Iqbal Ahmed in New York and Marc Jones in London; Editing by Bernadette Baum)