Stocks, commodities pull back over China, Fed questions

By Chuck Mikolajczak

NEW YORK (Reuters) - Global equities edged lower on Thursday and commodities retreated from early gains as investors continued to question the depths of China's slowdown and the timing of an interest rate hike from the U.S. Federal Reserve.

The Purchasing Managers' Index indicated China's manufacturing shrank again in September, suggesting the world's second-largest economy is still cooling more rapidly than expected a few months ago, but kept fears of a hard landing for the world's second-largest economy at bay.

China's markets will be closed until Oct. 8 for the National Golden Week holidays.

"We are still trying to find the bottom. It is an evolutionary process," said Scott Wren, senior global strategist for Wells Fargo Investment Institute in St. Louis.

"We need some better clarity about what is going on in China. Some stability in these commodity markets would be kind of nice too."

Wall Street lost ground as economic data on the labour market and manufacturing gave mixed messages on the state of the U.S. economy, further clouding the picture on the timing of an interest rate hike from the U.S. Federal Reserve.

Investors will look to Friday's key payrolls report in hopes for more clarity for when the Fed will begin raising rates.

The Dow Jones industrial average fell 122.89 points, or 0.75 percent, to 16,161.81, the S&P 500 lost 10.71 points, or 0.56 percent, to 1,909.32 and the Nasdaq Composite dropped 39.56 points, or 0.86 percent, to 4,580.61.

The FTSEuroFirst 300 index in Europe slipped 0.4 percent, while MSCI's all-country world index shed 0.05 percent.

Europe pared earlier gains and turned negative after weaker euro zone manufacturing growth, with phone stocks leading the way after a capital raising move at Altice to fund a U.S. acquisition.

Glencore shares ended down 0.6 percent in London despite the company's assurances that its debt-cutting plans remain on track and a decision by board member and legendary banker John Mack to buy $600,000 worth of stock.

The PMIs in Europe came a day after official data showed consumer prices fell again in September, adding to pressure on the European Central Bank to expand its stimulus programme, already set at more than 1 trillion euros.

In currency markets, the dollar fell 0.3 percent to in the wake of the U.S. manufacturing data.

Commodities markets also pulled back after showing brief signs of stabilizing. The Thomson Reuters Jefferies CRB Index <.TRJCRB> of 19 commodity prices was off 0.4 percent at 193.76 after reaching a high of 195.48.

U.S. crude was down 0.24 percent at $44.97 a barrel after a climb of nearly 4 percent boosted by a rally in U.S. gasoline on worries about potential damage to oil installations from a hurricane headed for the U.S. East Coast. Brent crude slipped 0.6 percent to $48.08 a barrel after climbing as high as $49.84.

Copper slipped as earlier optimism over the China data faded, but held near two-week highs, which analysts expected the metal to once again test.

Three-month copper on the London Metal Exchange lost 0.6 percent at $5,127 a tonne after hitting two-week highs of $5,230.

(Reporting by Chuck Mikolajczak; Editing by Chizu Nomiyama and Nick Zieminski)