Signs of US weakness hits world markets overnight

Stocks in Europe and the US fell after worse-than-expected US economic data bolstered concern about growth.

An unexpected decline in US regional factory activity and a third straight month of decline in US producer prices hurt market sentiment.

Factory output fell 0.4 per cent in June, a US Federal Reserve report showed. Producer prices slid 0.5 per cent after a 0.3 per cent decline the month before, the US Labor Department said. Other reports showed factories pulled back in the New York and Philadelphia regions in July.

Investors weren't impressed with earnings either. Although JPMorgan Chase & Co's quarterly profit beat expectations, the company's investment banking arm posted weak results.

In late trading, the Dow Jones industrial average fell 0.61 per cent, the Standard & Poor's 500 Index declined 0.55 per cent and the Nasdaq Composite Index lost 0.57 per cent.

Among the most active stocks on Wall Street were Amazon, General Electric, 3M, Bank of America and Citigroup.

BP may reach an agreement as soon as next week to sell assets to Apache for US$10 billion to US$11 billion, including half its stake in Alaska's Prudhoe Bay field, Bloomberg News reported, citing two people familiar with the matter.

The deal will probably be an all-cash transaction, said one of the people, who asked not to be named because the negotiations remain private.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street's 'fear gauge', rose 2.49 per cent to 25.51.

The Stoxx Europe 600 Index dropped 1.2 per cent to 252.97.

Across Europe, the U.K.'s FTSE 100 fell 0.8 per cent, France's CAC 40 dropped 1.41 per cent and Germany's DAX declined 0.97 per cent.

Among the most active stocks in Europe were Rio Tinto, Gartmore Group and Piraeus Bank.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 1.02 per cent to 82.58.

US Treasuries rose, pushing two-year note yields to a record low, amid concern the economic recovery is faltering.

Yields on two-year notes fell to 0.5767 per cent, the lowest since the Fed began regular sales of the securities in 1975. The yield on the 10-year Treasury note dropped 7 basis points, or 0.07 percentage point, to 2.98 per cent at 11.56am in New York, according to BGCantor Market Data.

The US dollar fell, while the euro climbed to a two-month high, as soft inflation and manufacturing data added to concern about the strength of the US economy.

The euro rose 1.4 per cent to US$1.2917 for its best day in two weeks.

Positioning and technical considerations suggest "a move toward US$1.30 is realistic," Derek Halpenny, head of Europe currency research at BTM/UFJ, told Reuters.

The US dollar fell 1.2 per cent to 87.46 yen.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.52 per cent to 263.57.

Oil fell after disappointing US economic data bolstered concern about future demand.

By 11.15am EDT, US crude for August was trading down US$1.23 at US$75.81 a barrel. ICE Brent was down US$1.03 at US$75.74 a barrel.

"The market was looking for confirmation that growth was proceeding at a good pace, so when the numbers weren't a lot better than expected some of the optimism that has pushed prices up caused some profit-taking," Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut, told Reuters.

Gold rose. Spot gold was bid at US$1,211.70 an ounce at 1528 GMT against US$1,207.50 late in New York on Wednesday. US gold futures for August delivery rose US$5.40 to US$1,212.40.

"Bargain hunters want to buy it around US$1,200, and (at) US$1,217, profit takers are all lined up," Afshin Nabavi, head of trading at MKS Finance, told Reuters.

"Overall a break above US$1,225 should trigger more interest from the buyers who are currently on the sidelines. On the downside, US$1,200 to US$1,185 should bring in some physical related buying."

Among other precious metals, silver was bid at US$18.29 an ounce against US$18.24, rising in line with gold. Platinum was at US$1,521 an ounce against US$1,519.50, while palladium was at US$467 against US$464.50.

"Platinum and palladium, which are predominantly used for the production of autocatalyts, are currently facing some pressure," - Reuters reported, citing a Commerzbank note.

"The declining global demand for vehicles might have contributed to this trend. Car sales in Europe, for instance, fell by 6.2 per cent in June compared to last year," it said.

Copper futures slipped. Copper for September delivery fell 1.50 cents to US$3.0025 per pound by 10.18am EDT (1418 GMT) on the COMEX metals division of the New York Mercantile Exchange.