Lacklustre factory data hits world stocks, dollar gains

Investors keep a cautious eye on civil unrest in Hong Kong

Stocks worldwide began the fourth quarter on a negative note on Wednesday, with investors wary of lacklustre economic data and keeping a cautious eye on civil unrest in Hong Kong.

The dollar held close to a four-year high against a currency basket, helped by the weak factory activity data, and pushed commodity prices lower.

The pan-European FTSEurofirst 300 equity index was down 0.1% after final September purchasing manager numbers from France and Germany underlined the fragility of the European recovery.

Sales warnings from British retailer J Sainsbury and French cable maker Nexans added to the gloom.

"Since the Fed meeting on Sept. 17, we've seen a 'risk-off' trade, with the fixed income market playing its role of 'safe-haven' while equities and commodities have been slipping in negative territory," Ycap Asset Management's head of quantitative strategies in Paris, Gregory Raccah, said.

Manufacturing stumbled across most of Asia in September. The closely watched Chinese PMI stayed stuck at 51.1, only modestly above the 50 level that separates growth from contraction.

"The political unrest in Hong Kong is dragging down market sentiment, while Japanese (mixed Tankan survey) and Chinese (unchanged manufacturing PMI) data were unconvincing," Rabobank analysts said in a note.

MSCI's main index of Asia-Pacifc shares outside Japan fell 0.3%. In Tokyo, the Nikkei stock index closed 0.6% lower. Big Japanese manufacturers were slightly more optimistic in the third quarter but service-sector sentiment worsened, a central bank survey showed.

Chinese stock markets were closed for a national holiday but investors warily monitored thousands of pro-democracy protesters in Hong Kong, where demonstrations spread.

US shares closed the third quarter on a downbeat note, dragged lower by energy and materials shares as consumer confidence fell in September for the first time in five months and home prices rose less than expected in July.

The dollar, riding high in recent days on the divergent monetary policy outlooks of the Federal Reserve on the one hand and the European Central Bank and the Bank of Japan on the other, topped 110 yen for the first time in six years.

The Japanese currency was last down 0.1% at 109.77 yen.

The euro, which plumbed a two-year low under $1.26 on Tuesday after subdued euro zone inflation data was seen making ECB monetary stimulus more likely, was down 0.1% at $1.2620.

PAYROLLS

Analysts said US jobs data due on Friday would be crucial for the dollar's near-term prospects.

"Friday's non-farm payrolls will be key, as it could raise rate hike expectations another notch," Barclays Bank chief Japan FX strategist in Tokyo, Shinichiro Kadota, said.

Dollar strength and concern over growing supply have weighed heavily on Brent crude oil lately. The Chinese PMI data lifted it towards $95 a barrel on Wednesday, although it last traded down slightly on the day at $94.67.

"It's a tiny bit better than the market expected, but the China bears have been beating their chest very loudly in the past few weeks so we should see some relief rally," OptionsXpress market analyst in Sydney, Ben Le Brun, said.

Falling oil prices have hit Russia's rouble. The currency declined to 44.43 against a dollar-euro basket at Wednesday's opening, moving beyond the level of 44.40 at which the central bank automatically starts unlimited interventions to defend the currency.

The strong dollar also took its toll on gold. The metal traded near a nine-month low at $1,206 an ounce.