Global manufacturing decline puts Wall Street into reverse

(11am update) Wall Street stocks gave back more than half of last week's gains as weak manufacturing data worldwide triggered a widespread selloff in all markets.

The main Dow Jones indexc fell 680 points, or 7.7%, to close at 8149, its fourth steepest decline. The broader S&P 500 plunged 8.9% to 816.

Financial stocks fared worst, falling 17% as a group, with Citigroup and Bank of America falling more than 20%. Energy stocks tumbled 11% as oil futures settled under $US50 a barrel. 

Earlier, belated confirmation came from the panel that declares US recessions, defined as two consecutive quarters of nil growth. The National Bureau of Economic Research said the economy entered a recession a year ago this month (December).

The last time the US was in a recession was from March through November 2001, it said.

“The committee determined that the decline in economic activity in 2008 met the standard for a recession,” the NBER says. The 1.2 million drop in payroll employment so far this year was the biggest factor in determining that start of the contraction, it added.

Meanwhile, fresh economic news suggested the recession is deepening. Manufacturing figures for November production fell at the fastest pace in 26 years and credit-card lending was forecast to be down by more than $US2 trillion.

The previous five consecutive days’ advances in the S&P 500 marked the benchmark gauge’s longest streak of gains since July 2007 and sent it up 19% from an 11-year low on November 20, the most over five days since 1933.

Earlier, European stocks dropped, sending the Dow Jones Stoxx 600 index down 6% to 193.91, the steepest slide since October 15 and its first retreat in six days.

National benchmark indexes decreased in all 18 western European markets. The FTSE 100 dropped 222.52 points, or 5.2%, to 4065.49; Germany’s Dax lost 275 points or 5.9% to 4395; and France’s Cac 40 shed 5.6% to 3080.43.

The markets were influenced by weak purchasing data from European buyers, reduced manufacturing activity in China and growing concerns about Japan's economy.

Asian stocks dropped as falling commodity prices dragged mining shares lower. The MSCI Asia Pacific index lost 0.1% to 82.60, ending a four-day, 7.6% advance.

Japan's Nikkei 225 lost 1.4% to 8397.22 though Hong Kong's Hang Seng index bucked the trend by climbing 1.6%.

Currencies

The yen rose to a one-month high against the dollar and gained versus the euro as investors bought back Japan’s currency at the expense of higher-yielding assets. The yen appreciated 2.5% to 93.19, after touching 93.05, the strongest level since October 28. The yen also gained 3.1% to 117.61 against the euro while the dollar appreciated 0.6% to $1.2619 per euro.

The Chinese yuan dropped the most against the greenback since China ended a fixed exchange rate in 2005, while Russia’s rouble slid to a two and a half-year low. In London, the British pound plunged 4% against the US dollar, from $US1.54 to $US1.48. The pound also lost ground against the euro, which traded at £0.85.

Commodities

Crude oil fell to the lowest close in more than three years after Opec deferred a decision to reduce output until its next meeting on December 17. January delivery prices declined $US5.15, or 9.5%, to $US49.28 a barrel, the biggest one-day drop since Oct. 10.

Gold tumbled the most in eight months with futures for February delivery falling $42.20, or 5.2%, to $776.80 an ounce in New York.

In other overnight developments:

• US manufacturing activity fell in November to a fresh 26-year low. For the second month in succession, figures have hit lows last seen in 1982, with activity declining to 36.2 in November from 38.9 in October.   

• A European manufacturing index based on a survey of purchasing managers dropped to 35.6 from 41.1 in October, the lowest since the survey began in 1998.

• UK manufacturing shrank at the fastest pace in at least 16 years in November, a separate report showed.

• UK figures for new mortgage approvals fell to a record low, suggesting the housing market was still in the doldrums.

• US car maker Ford said it may sell its Sweden-based Volvo unit, a day ahead of US auto companies presenting their survival plan to the Congress.

• China's manufacturing output fell sharply in November. The official purchasing managers' index declined to 38.8 in November, from 44.6 in October, with any figure under 50 indicating a contraction.