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While you were sleeping: Economic prospects dim

Friday 25th May 2012

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Wall Street declined amid concern that problems in Europe and China will impact American corporate earnings.

China's largest banks are struggling as an easing in the rate of economic expansion has hurt demand for credit. The nation's biggest banks may fall short of loan targets for the first time in at least seven years, Bloomberg News reported, citing three bank officials with knowledge of the matter said.

In Europe, where the debt crisis rages unabated amid fear that Greece might set a precedent by abandoning the common currency, the region's economy is taking a hit.

Business confidence in Germany, Europe's largest economy, slid more than expected this month as the Ifo institute said its business-climate index weakened to 106.9 from 109.9 in April. Separately, a German index based on a survey of purchasing managers in the manufacturing industry fell to 45 in May from 46.2 in April, Markit Economics said.

In Britain, the economy shrank by 0.3 percent between January and March, according to the Office for National Statistics. Forecasts had called for an unchanged reading of -0.2 percent, according to Reuters. On the year, GDP contracted by 0.1 percent, the first annual decline since the fourth quarter of 2009.

In late afternoon trading in New York, the Dow Jones Industrial Average fell 0.41 percent, the Standard & Poor's 500 Index declined 0.43 percent and the Nasdaq Composite Index dropped 0.85 percent.

"The market has pulled back far enough that people are trying to assess if we've priced the worst of what's known. But with the problems in Europe and the fact the news isn't reassuring, prices are still somewhat soft," Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, Ohio, told Reuters.

Data on the US economy including the labour market and manufacturing failed to offset the worry about the effect of slow growth elsewhere.

In the US, initial claims for state unemployment benefits fell 2,000 to a seasonally adjusted 370,000 last week, according to the Labor Department. The four-week moving average fell 5,500 to 370,000.

The US flash manufacturing Purchasing Managers Index slid to 53.9 in May, a three-month low, from 56.0 in April, according to Markit.

"We are growing at moderate pace of two to two-and-a-quarter percent, but we have some headwinds that are starting to assert themselves, particularly coming from Europe," Paul Edelstein, an economist at IHS Global Insight in Lexington, Massachusetts, told Reuters.

In Europe, the Stoxx 600 Index ended the day with a 1 percent advance for the session, as recent declines amid the euro zone debt crisis have brought valuations down to levels that appeal to some investors.

"There is already a lot of bad news priced in," Robert Buckland, Citigroup's chief global equity strategist, wrote in a report dated yesterday, according to Bloomberg. "While it looks like it's going to be another difficult summer for global equity markets, our targets are now suggesting 20 percent upside by end-2012. We would buy into weakness."

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