World shares, oil drop on Greece, US outlook

More disappointing US economic data combined with intensifying concern about Greece's debt troubles sent stocks on Wall Street and in Europe lower.

In afternoon trading on Wall Street, the Dow Jones Industrial Average dropped 1.53 per cent, the Standard & Poor's 500 Index shed 1.76 and the Nasdaq Composite Index lost 1.60 per cent.

The Stoxx Europe 600 Index dropped 1.1 per cent.

"The market will sell first and ask questions later," Mark Luschini, chief investment strategist at Philadelphia- based Janney Montgomery Scott, told Bloomberg News.

"The latest figures are cementing this mushy patch of economic data. In addition, there's concern about Greece. Ultimately, there will be some resolution, but we've had a couple of false starts. There's still a lot of work and compromise," he said.

Reports today showed that the core US Consumer Price Index, which excludes volatile food and energy prices, rose more than expected in May, while the New York Federal Reserve's Empire State manufacturing index unexpectedly shrank in June, falling below zero for the first time since November.

On the earnings front, profit forecasts by companies including Ford and Owens-Illinois also worried investors.

Ford said that pretax profit would be lower in the second half than in the first half as the car maker struggled with rising structural and commodities costs.

Owens-Illinois, the world's largest bottle maker, slashed its second-quarter profit outlook and said margins would shrink.

The VIX, a measure of stock-market volatility known as Wall Street's fear gauge, jumped 16 per cent.

Across the Atlantic, Greece's debt troubles remained a key concern. The euro suffered its largest one-day drop in more than a month against the US dollar after the Greek prime minister's government lost political support.

Greek Prime Minister George Papandreou offered to step aside to permit the formation of a unity government, as long as all opposition parties agreed to cuts required by an international bailout, said a person with direct knowledge of the matter, Bloomberg News reported.

"The Greek issue doesn't look like it's going to go away any time soon," Aroop Chatterjee, a currency strategist at Barclays in New York, told Bloomberg News. "We see more downside risk for the euro area on the macro front, and for the euro as well."

The euro weakened 1.7 per cent to US$1.4201 at 12.40pm in New York. Earlier, it reached US$1.4181, the lowest level since May 27. The euro dropped 1.2 per cent to 114.80 yen. The greenback rose 0.5 per cent to 80.86 yen.

Meanwhile, an emergency session of euro zone finance ministers yesterday ended with no progress on a new aid package for Greece. Today, Moody's Investors Service warned that BNP Paribas, Societe Generale and Credit Agricole might have their debt ratings cut because of their investments in Greece.

The economic concerns in the US and Europe sent oil prices tumbling.

Brent crude for July delivery, which expires on Wednesday, dropped US$3.14 to US$117.02 a barrel by 2.05pm EDT. US July crude was down US$4.05 at US$95.32 a barrel.

"It's a rush for the exits. The market has been overvalued for some time now...the Brent market has been a bubble and the bubble is bursting today," Tim Evans, energy analyst at Citi Futures Perspective, told Reuters.

"In my opinion, WTI would be fairly valued at US$85 a barrel and Brent at US$90 a barrel," Evans said.