Global shares fell and the dollar headed toward a 15-year low against the yen on Wednesday on growing concern about the U.S. economy as recent data has sparked talk of more monetary easing by the Federal Reserve.
Data on Tuesday showed U.S. home purchase contracts tumbled to a record low in June, while factory orders fell more steeply than expected, implying an anemic economic recovery for the remainder of this year.
U.S. concerns encouraged stock market participants to take profit, even as earnings releases from the likes of Lloyds Banking Group
The MSCI world equity index <.MIWD00000PUS> fell 0.4 percent, while European shares lost ground, with the FTSEurofirst 300 index <.FTEU3> down 0.7 percent.
Economic data in the U.S. has been pointing toward a slowing economy and while earnings have been better than expected, there are worries about the future. It is not the full support the market needs, said Bernard McAlinden, investment strategist at NCB Stockbrokers, in Dublin.
Weak U.S. data has fanned market speculation that the U.S. Federal Reserve could further relax policy, perhaps at its August 10 meeting, weighing heavily on the U.S. dollar and pushing down U.S. Treasury yields.
The dollar fell to an eight-month low versus the Japanese yen of 85.32 yen, opening up the path toward 15-year lows below 84.82 yen.
Against a basket of major currencies <.DXY>, the dollar was up 0.1 percent, but stayed close to a three-and-a-half-month low hit on Tuesday.
Mounting concern about the U.S. economy and persistent Japanese deflation, reinforced by a rising yen, sent 10-year Japanese government bond yields to a seven-year low below 1.0 percent.
Japan's Nikkei stock index <.N225> fell 2.1 percent on Wednesday on worries the yen's strength could undermine Japanese exports. Prime Minister Naoto Kan said it may be necessary to consider new stimulus steps for Japan's economy while a Bank of Japan policymaker said he was watching the yen closely.
The drop in Japanese government bond yields and U.S. growth worries pushed European bond prices higher, with the September Bund futures up 18 ticks at 129.24, while the two-year U.S. Treasury note yield hovered just above a record low of 0.526 percent set on Tuesday.
Investors will be watching for U.S. ADP national employment data later in the day for clues on how key U.S. non-farm payrolls figures will look on Friday, while the Institute for Supply Management's July non-manufacturing index is also due.
At a time when it seems that any news is bad news for the greenback, today's data will not help much, analysts at Brown Brothers Harriman said in a note.
Renewed market aversion to taking on risk also helped gold prices rally to their highest in more than a week, with China's decision to allow banks to hedge bullion positions in overseas markets also lifting the metal.
Oil fell for the first day in five as a rally that powered prices to three-month highs near $83 on Tuesday lost steam. U.S. crude oil fell 75 cents to $81.81.
Emerging stocks <.MSCIEF> fell 0.1 percent.
(Additional reporting by Joanne Frearson; Editing by Susan Fenton)