World stocks fall after massive run in 2013, oil off on Libya

By Rodrigo Campos

NEW YORK (Reuters) - World equity markets kicked off 2014 with a whimper on Thursday as slightly disappointing Chinese manufacturing data triggered some profit-taking, and oil prices were lower as Libya prepared to reopen a major oilfield.

Top U.S. stock indexes posted their largest daily drops in three weeks on the first trading day of the new year after the benchmark S&P 500 finished its best year since 1997.

The dollar rallied against a basket of major currencies as jobs, housing and manufacturing data gave support to the Federal Reserve's decision to start slowing its stimulus program this month.

Global manufacturing ended 2013 on a strong note as major exporters like Japan, Germany and Italy posted their fastest growth in years, although manufacturing data from China overnight and on Wednesday proved disappointing.

"There was a sequential decline in the (Chinese) PMI number, so that knocked down indexes a bit. It's definitely taking a bit of a breather in looking for the new catalyst, looking for the next investment theme to unfold and develop," said Anastasia Amoroso, global market strategist with J.P. Morgan Funds, in New York.

"It's a slow start to the new year, but it's also important to look past one day of data points and what we think is going to be a continuation of a cyclical expansion in the United States and elsewhere."

The Dow Jones industrial average fell 129.7 points or 0.78 percent, to 16,446.96, the S&P 500 lost 16.45 points or 0.89 percent, to 1,831.91 and the Nasdaq Composite dropped 35.613 points or 0.85 percent, to 4,140.977.

The pan-European FTSEurofirst 300 ended down 0.8 percent after starting the day at a 5-1/2-year high. MSCI's 45-country share index was down 1 percent.

Crude oil prices fell after Libya prepared to restart a major oilfield and on speculation of a sharp rise in crude stockpiles in the United States.

Brent was last down 2 percent at $108.56 a barrel while U.S. crude was last at $96.38 per barrel, down 2.1 percent.

A report by industry group Genscape showed a 1 million barrel rise in stockpiles at Cushing, Oklahoma, the benchmark delivery point for U.S. oil futures.

Spot gold climbed 1.5 percent to $1,223 an ounce. The move recouped some of the losses that made last year gold's worst in three decades.

Three-month LME copper rose to its highest level in seven months but failed to hold above resistance near $7,420 per ton. It was recently up 0.3 percent at $7,381.

DOLLAR STRENGTHENS

The euro, the strongest-performing major currency in 2013 but historically a weaker performer at the start of a calendar year, dropped to a two-week low of $1.3634 and last traded 0.6 percent lower at $1.3669.

The dollar rose to its strongest level versus the yen since October 2008, hitting a high of 105.44 yen, before erasing gains to trade down 0.2 percent at 105 yen.

Japanese financial markets are closed on Thursday and Friday for the New Year's break.

Against a basket of major currencies , the greenback rose 0.6 percent.

"The U.S. dollar has started the year with strength, and a shift in market dynamics suggests the dollar may continue to gain versus the euro and other counterparts," said David Rodriguez, quantitative strategist at DailyFX in New York.

Yields on U.S. 10-year paper dipped below 3 percent after hitting a high of 3.04 percent.

(Reporting by Rodrigo Campos; additional reporting by Chuck Mikolajczak, Jeanine Prezioso and Julie Haviv; editing by Dan Grebler and Leslie Adler)