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Markets post heavy losses amid slow growth fears

Stock markets fell sharply yesterday as surprisingly weak data from China and Europe raised worries about slow growth a day after US Federal Reserve chief Ben Bernanke broached the possibility of reducing stimulus that has buoyed investor confidence.

Stock markets fell sharply yesterday as surprisingly weak data from China and Europe raised worries about slow growth a day after US Federal Reserve chief Ben Bernanke broached the possibility of reducing stimulus that has buoyed investor confidence.

Japanese shares were hit hardest in overnight action, with the Nikkei losing 7.3pc – its biggest one-day fall in two years. European shares were down 1.9pc, and MSCI's world equity index lost 1.3pc, though both indices were off their lows.

The drop in Europe was the biggest in 10 months. In Dublin, the ISEQ Overall Index fell as much as 1.5pc in the morning and again in the afternoon but closed down just 0.7pc, the biggest fall in a month.

US stocks were lower, but off the day's worst levels, with the S&P 500 down 0.35pc.

Chinese factory activity shrank for the first time in seven months, adding to concerns that the world's second-biggest economy had stalled.

European factory sentiment dropped, suggesting that the eurozone's economy was likely to contract again in the second quarter.

"Even though we were overdue for a correction, the Chinese data certainly didn't help things. If it proves to be part of a trend, that's very concerning for the global economy," said Eric Green, a senior portfolio manager at Penn Capital Management in Philadelphia.

The data gave investors a reason to extend Wednesday's sell-off, sparked after testimony from Mr Bernanke that cast uncertainty over when the Fed would begin to reduce stimulus.

Fed officials have started to talk more openly about pulling back on stimulus that has held US Treasury yields near record lows, creating a favourable environment that has produced sharp rallies in stocks and high-yield corporate bonds.

Mr Bernanke said that if economic improvement continued, the Fed "could in the next few meetings take a step down in our pace of purchases", although Fed officials have been at pains to stress that no action is likely for months.

The programme is seen as a major contributor to the massive equity gains that have taken indexes to record highs this year, and many analysts worry that the US economy is not strong enough to continue outperforming without it.

STORM

"This morning, we got the perfect storm for risky assets, with negative signals from both monetary policy and macro-fundamentals," said Witold Bahrke, who helps oversee $55bn at PFA Pension in Copenhagen. "Quantitative-easing fears got boosted yesterday, which can have quite an effect in an extremely central-bank manipulated market."

US light crude oil, which is closely tied to the pace of economic growth, fell by 1.4pc. The US dollar index fell by 0.6pc. (Additional reporting by Reuters and Bloomberg)

Irish Independent