World markets hit by US corporate earnings worries

LONDON — World stock markets fell, oil prices slid and the dollar slumped to a five-month low against the yen Wednesday amid fears that the upcoming U.S. second-quarter earnings season will disappoint.

In Europe, the FTSE 100 index of leading British shares closed down 46.77 points, or 1.1 percent, at 4,140.23, while France’s CAC-40 fell 38.86 points, or 1.3 percent, to 3,009.71. Germany’s DAX was 25.54 points, or 0.6 percent, lower at 4,572.65.

In the U.S., the Dow Jones industrial average reversed early gains to go 25.40 points, or 0.3 percent, lower at 8,138.20 around midday New York time, while the broader Standard & Poor’s 500 index fell 4.78 points, or 0.6 percent, to 876.25. The S&P’s losses have pushed it further below its 50-day and 200-day moving averages and below where it started the year, even after 15-percent gains in the second quarter, its best performance since 1998.

Key over the coming days and even weeks could be the second-quarter earnings reporting season as it will provide clues about whether companies have already seen the worst of the recession or whether they are still struggling in the first synchronized global economic downturn since World War II. Aluminum company Alcoa Inc. is the first Dow constituent to report.

“A lot hinges on the earnings season and how spectacular (or otherwise) the U.S. corporate results end up being,” said David Jones, chief market strategist at IG Index.

“Until it is clearer just how well companies have weathered the recent months it would not be surprising to see nervy trading over the next few days,” he added.

Equities rose from the middle of March until the start of June on hopes that the U.S. economy in particular will recover from recession sooner than anticipated.

But disappointing economic news over the last few weeks, culminating in last Thursday’s worse-than-expected U.S. jobs report for June, has altered the general mood prevailing among investors that a significant rebound in the U.S. was a distinct possibility. Since peaking in early June, the S&P and the Dow Jones industrial average have dropped around 7 percent.

“Given the strong performance of stocks relative to March lows, a reality check from earnings could be detrimental to risk appetite,” said Ashley Davies, an analyst at UBS.

Earlier in Asia, Japan’s benchmark Nikkei 225 stock average tumbled 227.04 points, or 2.4 percent, to 9,420.75 — its sixth fall in a row and its lowest close in six weeks. Worse-than-expected machinery orders data disappointed investors and fanned concerns about the fragility of the world’s second-biggest economy.

Elsewhere, Hong Kong’s Hang Seng index dropped 0.8 percent, to 17,721.07, while South Korea’s Kospi lost 0.2 percent to 1,431.02. Mainland China’s Shanghai Composite index — the world’s best-performing index this year — slipped 0.3 percent, and Australia’s key stock measure was flat.

Stocks aren’t the only investments suffering at the moment. Oil prices have fallen over $10 a barrel over the last week or so amid the waning investor optimism. Benchmark crude oil for August delivery fell $1.93 to $61 a barrel in electronic trading on the New York Mercantile Exchange Wednesday.

Meanwhile, the dollar was down a hefty 2.3 percent at 92.58 yen — earlier in the day it hit a five-month low of 92.13 yen.

The Japanese currency has been a big winner amid the economic uncertainty as it is widely considered a barometer of risk appetite in the markets in general — when investors are pessimistic, the yen gains a lot of support as it is considered a safe haven currency. In contrast, currencies considered as more risky, partly because of their exposure to falling energy and commodity prices, such as the Australian dollar, fell sharply Wednesday.

Against the euro, the dollar was faring much better — a euro was worth $1.3856, 0.4 percent down on the day.

Stuart Bennett, senior foreign exchange strategist at Calyon Credit Agricole, noted that the euro has lost over 2 percent of its value against the dollar since the start of June — around half the losses posted in stock markets.

“This apparent greater sensitivity does indicate that the euro would be vulnerable if concerns over equities come to fruition,” he said.

Investors will be keeping a close eye on how far world leaders will go in expressing support for a strong dollar at the Group of Eight summit in Italy, amid talk that the dollar’s status as the world’s reserve currency will be on the agenda.

China, Russia and India have indicated that they want to see long-term changes in the international monetary system in the wake of the financial crisis that has pushed the world economy into its first synchronized downturn since World War II.

But they have been careful not to push their desire for change too far — in case the dollar slumps and the value of their large dollar-denominated investments plummet.

AP Business Writer Tomoko A. Hosaka in Tokyo contributed to this report.