Feb.04 - World shares slump to a near four-month low as signs the U.S. economy is stuttering compounds already frayed nerves following a sharp sell-off in vulnerable emerging markets. Sonia Legg reports
It started in the U.S. and quickly spread to Asia and Europe until world shares had hit a four-month low. Weaker than expected U.S. factory activity was the trigger. But the fact that it followed last week's sharp sell-off in emerging markets was the main issue. Robert Halver is a trader in Frankfurt. (SOUNDBITE) (German) TRADER WITH BAADER BANK, ROBERT HALVER, SAYING: "The problem is that a lot of investors believe that central banks, especially the Fed, will slowly withdraw money. This leads to a capital exodus from emerging markets and because a lot of investors are doing this right now, money for investments is missing all of a sudden. This in turn creates not just a bad financial market atmosphere but also a bad economy in emerging markets." Asian traders returning from Lunar New Year holidays didn't help as they caught up with the sell-off elsewhere. Japan's Nikkei saw a 4% dive - making it this year's worst performing major market. It's now lost 14% of last year's 50% boom. And its emerging markets which could again suffer the most, says BGC's Mike Ingram. (SOUNDBITE) (English): MIKE INGRAM, MARKET COMMENTATOR, BGC PARTNERS, SAYING: "If you look at the U.S. yield curve you see this massive rally at the long end, we've seen a collapse in yields of approaching 40 basis points now and on the back of the weak PMI from the US yesterday I think there are fears that global growth isn't necessarily going to accelerate and that is going to hit emerging markets relatively hard because they are a relatively late cycle economy." Key US and European benchmarks fell around 6% and 3% respectively. Many believe the solution now lies with central banks. (SOUNDBITE) (German) TRADER WITH BAADER BANK, ROBERT HALVER, SAYING: "It is essential that financial monetary policy cooperates closely: the U.S. Federal Reserve, the European Central Bank and the Japanese central bank must work together for the good of the world economy. A national monetary policy is no longer possible, it's vital." Germany government bonds - considered Europe's most secure investment - were one of the few risers - hitting a six month high. Many eyes will now be on the ECB - which sets its monthly interest rate on Thursday.