NEW YORK - Global shares fell more than 1% on Thursday and the euro hit a new two-year low on concern about the world economic growth outlook and dimmed expectations for any new near-term stimulus response by the US Federal Reserve.
Stocks on Wall Street tumbled after the opening bell, with the weakening growth picture prompting a number of high-profile corporate earnings warnings in recent days.
The weaker-than-expected start to the second-quarter US corporate reporting season, combined with expectations of slower economic growth in the world's leading economies, had encouraged hopes for the Fed to resume a policy of creating money to lower long-term interest rates, a process known as quantitative easing, or QE3.
There was some solace from data on Thursday that showed the number of Americans applying for jobless benefits fell last week to a four-year low, though some of that improvement may be temporary. But analysts said it did little to sway the view the economic recovery had hit a soft patch.
"It's welcome news. It's not a game changer," said Peter Kenny, MD at Knight Capital in Jersey City, New Jersey. "Whether it is broader themes in employment, gross domestic product, industrial production, housing - there is a lot there that speaks to a headwind that is going to take some very significant time and energy to get through."
A surprise rate cut in South Korea on Thursday following a 50-basis-point cut by Brazil on Wednesday evening also underscored the growing impact the slowdown had worldwide.
But the lack of any monetary easing by the Bank of Japan on Thursday and limited clues in the latest minutes from the Federal Reserve's June policy meeting, released on Wednesday, suggest central banks are still cautious about the need for further easing.
The Fed minutes showed the world's biggest economy would have to weaken further before its central bank took any more easing steps. The minutes did, however, show some officials felt more stimulus was justified.
The euro fell to $1,2165, its lowest since mid-2010. It last traded at $1,2184, down 0,4% on the day.
The yen strongly outperformed both the euro and dollar after the Bank of Japan limited itself to tweaking its asset-buying programme.
The dollar was last down 0,6% at ¥79,24, holding above chart support at the 200-day moving average of about ¥79,01. Against the yen, the euro fell to a six-week low of ¥96,40. It last traded at ¥96,60, down 1% on the day.
European shares followed Asian markets lower in response to the dampened prospects for any fresh stimulus measures, sending the FTSE Eurofirst 300 index down 1%.
The MSCI world equity index was down 1,1%.
"Anyone who's expecting some sort of quantitative easing come September ahead of the (US presidential) elections is possibly talking their own book because we're in an election year," said Brenda Kelly, market strategist at CMC Markets. "It will be a bit of a consolidation effort over the next number of weeks as the bulls and bears fight it out."
The Dow Jones industrial average fell 57,86 points, or 0,46%, to 12546,67. The S&P 500 index dropped 10,77 points, or 0,8%, to 1330,68. The Nasdaq composite index lost 36,66 points, or 1,27%, to 2851,32.
Technology shares have been among the worst performers recently, bogged down by profit warnings from companies such as Advanced Micro Devices and Applied Materials. For the month, the S&P technology sector is down 4,1% and the PHLX semiconductor sector is off 8,8%.
CHINA DATA EYED
Markets are also awaiting Friday's second-quarter GDP growth number from China, which is expected to show one of the few growth engines in the world economy is faltering.
A Reuters poll showed economists expect China's growth to have slowed to 7,6% in the second quarter, its worst performance since the 2008-09 financial crisis.
But analysts are hopeful the world's second-largest economy would have seen the worst between April and June, and expect a pick-up in the third quarter as Beijing loosens monetary policy and fast-forwards infrastructure spending.
Oil markets were softer ahead of the data because China is such a big source of demand. Prices were also hurt as the International Energy Agency said a slowdown could cap prices.
Brent crude oil fell 81 cents to $99,42 a barrel at $99,33 and US crude was at $84,83, down 98 cents.
Spot gold was down 1,3% at $1556,06/oz. The price has fallen 1,6% so far this week, marking its second consecutive weekly decline.