Risk trade unwinds as Wall St falls

Disappointing US economic data prompted a selloff in oil, which dropped more than 8 per cent. Stocks on Wall Street fell, with losses accelerating towards the close.

Oil was on track for its third-largest daily plunge in dollar terms on record as economic data from Europe and the United States underpinned concerns the pace of growth is slowing.

In Germany, industrial orders dropped unexpectedly in March, while in the US weekly jobless claims rose to the highest level in eight months.

In late afternoon trading on Wall Street, the Dow Jones Industrial Average dropped 1.13 per cent, the Standard & Poor's 500 Index shed 0.96 per cent and the Nasdaq Composite Index declined 0.39 per cent.

"It looks like it's an unwinding of the risk trade," Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon, told Reuters. Even so, a lower oil price "means the tax on consumers should come down a bit."

The drop in commodity prices, lowering inflation concerns, benefitted fixed-income securities.

US Treasuries gained, climbing for a sixth consecutive session, also helped by anticipation that government data tomorrow will indicate job growth eased in April.

The yield on the 30-year bond fell four basis points to 4.29 per cent at 2.19pm in New York, according to Bloomberg Bond Trader prices.

As commodities took a beating, with the Reuters-Jefferies CRB index dropping 4.5 per cent, the S&P energy index was down 1.1 per cent.

Silver slid to the lowest level in five weeks, and was headed for its biggest weekly drop in almost three decades.

Gold fell 1 per cent. Copper and tin dropped, too, with LME copper falling more than 4 per cent while tin declined in excess of 7 per cent.

"It's a broad-based, risk-off selling momentum that has gathered pace," Barclays Capital analyst Gayle Berry told Reuters.

Brent crude futures for June fell US$10.28 to US$110.91 a barrel at 2:10pm EDT

"The longer-term bull cycle is still in place, but this correction may have a life span of several months, as weaker economic data is fueling this correction to a large part," Sterling Smith, senior analyst for Country Hedging Inc in Minnesota, told Reuters.

Meanwhile, the euro weakened almost 1 per cent after the European Central Bank quashed expectations that it would raise interest rates next month as many investors anticipated.

The Stoxx Europe 600 Index shed 0.3 per cent, bringing its drop in the past three days to 2.2 per cent.

Worse-than-expected bank earnings including from Lloyds Banking Group Plc, which posted a quarterly loss, and Societe Generale weighed on the market.