New orders for U.S. durable goods posted their biggest drop in five months in June while major global steel and auto companies said on Wednesday any return to growth would be gradual, casting doubt over some economists' forecasts for a recovery starting later this year.
Upbeat earnings reports globally in the past few weeks have propelled stock markets higher and prompted investors to take on more risk in their portfolios as they grow increasingly confident the world economy is on the path to recovery.
The U.S. Commerce Department said on Wednesday durable goods orders fell 2.5 percent in June, the largest drop since January, after rising by a revised 1.3 percent in May.
This was worse than market expectations for a 0.6 percent decline. Orders, which had advanced for two straight months, were pulled lower by steep declines in demand for transportation and communications equipment.
U.S. stocks opened lower on the news, while falling commodity prices also weighed on shares of natural resource companies, and investors fretted about the impact of an overnight sell-off in Chinese stocks.
The Dow Jones industrial average .DJI was down about 28 points or 0.3 percent half an hour after the opening, with other stock indexes also moderately lower.
U.S. 30-year Treasury bonds gained over a full point in price in buying in response to lower share values, while the U.S. dollar also rose broadly, recovering from its recent weakness as rallies in oil prices and stock markets stalled, reviving similar safe-haven demand for the greenback.
As more reports like this come out, reinforcing the view that the economy is not on the mend just yet, we are going to see Treasuries find support, said Bulent Baygun, head of U.S. interest rate strategy at BNP Paribas in New York.
U.S. crude prices dropped nearly $2 toward $65 a barrel after an unexpected rise in U.S. crude inventories and a fall on U.S. equity markets put the focus on weak fuel demand. London Brent slid $1.54 to $68.34.
Earlier, data from the U.S. Mortgage Bankers Association showed U.S. mortgage applications fell in the week ended July 24 for the first time in four weeks, driven by a drop in demand for home refinancing loans as interest rates climbed.
STEEL, AUTO OUTLOOKS BEARISH
ArcelorMittal (ISPA.AS) and Nippon Steel Corp (5401.T), the world's two biggest steelmakers, posted quarterly losses on Wednesday and ArcelorMittal's finance chief said he expected global demand for steel, a gauge of the strength of economies, to fall 10 percent this year.
Carmakers, key consumers of steel, also gave downbeat assessments of recovery prospects.
Japan's Nissan (7201.T) said it did not see a convincing recovery in global car demand, despite some bright signs in China. Honda (7267.T) lifted its annual forecast but the boost came from cost cuts and executives were downbeat on demand.
France's Peugeot (PEUP.PA) said Europe's car market would not start recovering until late 2010. On Wall Street, Time Warner Inc's (TWX.N) quarterly revenue fell a steeper-than-expected 9 percent due to a slump in the major media company's advertising spending and DVD sales, but cost cuts helped profit beat forecasts.
Retail sales in Japan offered more gloom.
They fell a deeper-than-expected 3 percent in June from a year earlier, suggesting worsening job and income conditions were offsetting government stimulus measures in the world's second-biggest economy.
This contrasted with more optimistic expectations of many economists, who expect the United States, the world's biggest economy, to start clawing its way out of the housing-led recession in the third quarter.
According to a Reuters survey, the U.S. economy will show its fourth straight quarter of gross domestic product declines in the second quarter, but at a slower pace. U.S. GDP data is due to be released on Friday.
China's economic growth, fueled by a 4 trillion yuan ($586 billion) pump-priming package and record bank lending, continues to spark economic activity, including infrastructure investment.
Two Chinese construction companies shone in their stock market debuts on Wednesday, with China State Construction Engineering Corp (601668.SS) surging as much as 90 percent in Shanghai and building materials group BBMG Corp (2009.HK) rising 59 percent in Hong Kong.
But they heightened concerns about a speculative stock market bubble forming, and how Beijing might respond, prompting a Shanghai market sell-off.
The main index .SSEC, which is off-limits to most overseas investors, dropped 5 percent in its biggest one-day fall for eight months after a 65 percent rally since March. [nBJD001002]
In Europe, consumers, facing a clampdown on credit to households and firms, showed no sign of raising spending. The European Central Bank said it would continue to tighten credit standards in coming months, though at a slower pace.
ECB data showed firms' demand for loans fell in the second quarter, with companies requesting less finance for fixed investment, mergers and acquisitions and corporate restructuring.
The bank said, however, it expected net tightening of credit standards applied to loans to households to weaken this quarter.
(Reporting by Reuters reporters around the world; Writing by Georgina Prodhan; Editing by Alison Williams and Matthew Lewis)