World markets slump on economy, oil news

The International Energy Agency said overnight it will release 60 million barrels a day to fill a gap left by output disruption due to the war in Libya. Photo / Thinkstock

A bleak picture painted by economic data from the US, Europe and China reinforced concerns that the global economy is heading in the wrong direction. A surprise release of emergency oil stockpiles by the International Energy Agency didn't help the mood.

"The market's perception is that there's not enough demand," Christoph Eibl, co-founder of Zug, Switzerland-based Tiberius Group, which manages about US$3 billion in commodities, told Reuters. "People are being caught off guard."

In late afternoon trading, the Dow Jones Industrial Average dropped 1.54 per cent, the Standard & Poor's 500 Index fell 1.45 per cent and the Nasdaq Composite Index declined 0.59 per cent. In Europe, the benchmark Stoxx 600 Index closed 1.4 per cent lower.

Yesterday's comments by European Central Bank President Jean-Claude Trichet who said that danger signals for financial stability in the euro area were flashing red kept alive concern that Greece's debt crisis might have repercussions reaching far beyond the nation's borders.

"It's ugly out there," Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, told Bloomberg News. "Trichet's comment was to remind politicians that this is a very serious situation and that they need to do the right thing. The message is that the risk may spread if Greece doesn't do the right thing."

The euro shed 1.1 per cent to US$1.4193.

European Union leaders began a two-day summit in Brussels today to discuss Greece's financing needs.

Meanwhile, data released today underpinned concern about the global economic outlook. Sales of new homes in the US dropped last month and more Americans than forecast filed first-time claims for unemployment insurance last week.

Signs were bleak elsewhere too, pointing to slowing private sector growth in China and Europe.

In a surprise announcement, the 28-member International Energy Agency today said it would release 60 million barrels a day over an initial 30 days to fill the gap left by the disruption to output from Opec member Libya, which before the civil unrest exported about 1.2 million barrels per day.

Crude dropped as a result, with benchmark Brent crude shedding US$7.07 to US$107.14 a barrel. US crude fell US$4.68 to US$91.73 a barrel.

"I think the IEA is trying to act like a central bank," Dominick Chirichella at New York's Energy Management Institute told Reuters. "I don't think anyone will be comfortable being long oil ... We may see [U.S.] oil trading in the US$80s very soon."

Other commodities suffered too.

Gold for August delivery fell 2.2 per cent to US$1,519.90 an ounce, palladium for immediate delivery shed 2.5 per cent to US$745.50 an ounce and silver for September delivery dropped 4.7 per cent to US$35.04 an ounce on the Comex in New York.

The US Dollar Index, which tracks the American dollar against six major currencies, was 1.1 per cent stronger on the day. The greenback rose 0.4 per cent to 80.62 yen.