World markets drop after bleak Chinese report

Traders are pictured at their desks at the Frankfurt stock exchange on Sept. 1, 2015.

REUTERS

TOKYO - Global stock markets fell sharply Tuesday and Wall Street was set to open lower as gloomy economic data from China and Japan augured further uncertainty for investors after a brutal August.

Britain's FTSE 100 dropped 2.2 percent to 6,110.61 and Germany's DAX sagged 2.5 percent to 10,003.60. France's CAC 40 lost 2 percent to 4,558.76.

U.S. markets also looked set to start on a weak footing, with Dow futures down 1.8 percent and S&P futures 1.9 percent lower.

An official index of Chinese manufacturing fell to a three-year low last month in another sign of slower-than expected growth in the world's No. 2 economy. The manufacturing index based on a survey of factory purchasing managers fell to 49.7 points in August from 50.0 in July, indicating a contraction.

"While a measure of calm has returned to these markets recently and they have seen relief rallies, many of the underlying negative fundamentals are still in place," Nariman Behravesh, chief economist for IHS, said in a report. "As a result, the downside risks for most commodity prices, exchange rates, and stock markets are likely to persist for some time, while growth in many parts of the world, especially in emerging markets, is likely to deteriorate further."

Measures of Japanese industrial production and capital spending, reported Monday and Tuesday, have undershot analysts' estimates, suggesting the economy may not have recovered as strongly as expected from a contraction in the April-June quarter. However, a purchasing managers' index for August showed improvement, with new order growth rising to a seven-month high.

Meanwhile, official figures showed the unemployment rate in the 19-country eurozone fell to 10.9 percent in July from 11.1 percent the month before. The rate is at its lowest since early 2012, but remains at an uncomfortably high level.

August was a miserable month for investors. Worries over China's slowdown and the timing of an interest rate hike by the Federal Reserve pushed shares sharply lower before moves by the Chinese central bank helped to stabilize the markets, at least temporarily. The Standard & Poor's 500 still finished August down 6.3 percent, its worst showing since May 2012.

China's Shanghai Composite Index dropped 1.2 percent to 3,166.62 after dipping nearly 5 percent earlier in the session. Japan's Nikkei 225 was also volatile, dropping 3.8 percent to 18,165.69. The Hang Seng in Hong Kong sank 2.2 percent to 21,185.43. Stocks also fell in South Korea and Australia.

Benchmark U.S. crude fell $1.01 to $48.19 in electronic trading on the New York Mercantile Exchange. It had surged $3.98, or nearly 9 percent, to $49.20 on Monday after the U.S. Energy Department cut its oil output estimate.

The dollar fell to 120.01 yen from 121.20 yen on Monday. The euro rose to $1.1269 from $1.1225.