World stocks fell for a fourth straight day on Thursday while the low-yielding dollar and yen advanced as weak U.S. retail sales data prompted investors to cut back on risky assets after their nine-week rally.
Oil prices also fell while government bonds rose as investors took a break from a risk buying frenzy after data showed on Wednesday sales at U.S. retailers fell for a second straight month in April, breaking a string of more upbeat reports that had suggested the economic slump was abating.
Yesterday's retail sales were a blow to the green shoots theory because that theory had been predicated on the resilient U.S. consumer, said Lee Ferridge, vice president and senior macro strategist at State Street.
However, market indicators showed a recovery is still on track. The cost of borrowing medium-term dollars hit a record low in Asia, suggesting banks are more willing to lend, while shipping costs hit a 2009 high on Wednesday on the back of strong Chinese demand for commodities. MSCI world equity index <.MIWD00000PUS> fell 0.9 percent, extending a decline after hitting a six-month high on Monday. The index is on track for the first weekly loss in 10 weeks.
The FTSEurofirst 300 index <.FTEU3> lost 0.85 percent.
Emerging stocks <.MSCIEF> fell 2.4 percent.
Historically equity markets start to price in the turn in the economic cycle about two quarters before the actual data starts to improve, Georgina Taylor, equity strategist at Legal & General Investment Management, said in a note.
However, for the market gains to be sustainable, economic growth needs to pick up as well as stabilize.
U.S. crude oil fell 1 percent to $57.45 a barrel.
The pullback in stocks comes after a near 40-percent rally since mid-March which generated optimism even among central bank governors, including European Central Bank President Jean-Claude Trichet, who said earlier this week the global economy might have turned around the corner.
In a further sign of easing tensions, dollar funding costs hit record lows in Singapore, with three-month interbank dollar rates falling to 0.87718 percent from 0.90143 percent on Wednesday.
On Wednesday, the Baltic Exchange's main sea freight index <.BADI>, which tracks rates to ship dry commodities, hit a new 2009 high, driven by continued demand for goods by China.
The index, which gauges the cost of shipping resources including iron ore, cement, grain, coal and fertilizer, rose to 2,332 points on Wednesday from 2,253 on Tuesday.
The June bund futures rose 14 ticks, helped by comments from ECB Governing Council member Ewald Nowotny who said key interest rates may approach a lower boundary of zero.
The dollar <.DXY> rose 0.2 percent against a basket of major currencies while the yen rose 0.1 percent to 95.42 per dollar.
(Additional reporting by Naomi Tajitsu; editing by Chris Pizzey)