Growth fears hit global stocks, investors eye Fed and Draghi

LONDON - World stocks fell on Wednesday as a decline in Chinese inflation and weaker European industrial data combined to suggest global growth may be slowing, eclipsing a positive start to the US earnings season.

The mining company Alcoa Inc reported results after Wall Street closed that beat analysts' expectations, but that was not enough to help European equities recover after they fell the most in three months on Tuesday.

Major currencies and bond markets were steady before a speech by European Central Bank President Mario Draghi and the release of the US Federal Reserve's minutes of its latest meeting.

"Growth continues to be a concern in the developed world," said Mark Burgess, chief investment officer at Threadneedle Investments in London. "I don't think the developed world can handle short, aggressive interest rate rises. The last thing anyone wants to do is stifle growth."

Overnight, China's consumer price index rose 2.3 per cent in June from a year earlier, shy of the consensus forecast of 2.4 per cent, and a sign economic activity may be cooling.

At midday in London, the FTSEuroFirst 300 index of leading European shares was down 0.3 per cent at 1,359 points.Germany's DAX was down 0.1 per cent at at 9,766 points and France's CAC 40 was down 0.2 per cent at 4,333 points.

Britain's FTSE 100 was down 0.5 per cent at 6,703 points, hit hard by the insurance sector. Admiral Group fell 6 per cent after issuing a trading statement update, and Aviva was down 3.7 per cent

Portuguese stocks lagged their European peers, falling 2.2 per cent on concerns about the financial health of one of the country's largest financial groups, Espirito Santo Financial Group. ESFG is the main shareholder of Portugal's largest listed bank, Banco Espirito Santo.

The Group's shares were down 11 per cent.

DRAGHI RETURNS TO LONDON

Portguese bonds also underperformed, with the 10-year yield spiking to a six-week high just shy of 3.9 per cent, while Greek yields ticked up to a one-month high of 6.17 per cent as the country prepared to issue a new three-year bond.

Major bond markets were stronger, however, before the Fed minutes and Draghi's appearance in London, where he delivered his famous speech almost exactly two years ago pledging to do "whatever it takes" to save the euro.

The benchmark 10-year Treasury yield was unchanged at 2.565 per cent. The yield on Germany's Bund slipped to a fresh one-year low of 1.21 per cent.

In currency markets, the euro was unchanged at $1.3607, while the dollar inched up against the yen to 101.66 yen.

The dollar has fallen back below a key long-term technical indicator against the yen this week. That's the 200-day moving average, which on Wednesday was 101.83 yen, suggesting it may not strengthen much - if at all - in the coming days and weeks.

Upbeat June US employment data last week prompted some Wall Street economists to predict the Fed would raise interest rates earlier than previously thought. But yields have fallen since then, with investors cautious about the strength of the recovery.

Disappointing German economic data on Tuesday kept the benchmark Bund yield anchored, and later on Wednesday investors will look to Draghi for signs the ECB could ease policy further to support the euro zone economy.

"If the ECB embarks on a round of assets purchases, it could push peripheral yields down another notch as investors view these assets as being backstopped by the central bank," Rabobank said in a note to clients.

In commodities trading, Brent oil fell 0.2 per cent to $108.73 per barrel. It has lost 3.5 per cent so far this month.

Gold was up 0.4 per cent at $1,324.00 an ounce as markets waited for the Fed minutes.

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