Weak corporate revenues undercut global stocks

Global share prices slid on Friday after disappointing revenue reports from bellwether US corporations dovetailed with subdued US inflation and slumping consumer confidence data, driving up the price of Treasuries as investors sought safety.

The combination of reports undermined the fragile confidence in the global economy. On Wall Street, the three major indexes all fell more than 2.5 percent.

Crude oil prices fell for a third straight day, and the dollar fell to a seven-month low against the yen, a traditional safe-haven investment.

The US Labor Department reported consumer prices fell for a third straight month in June due to lower energy costs. A private survey showed US consumer confidence dropped to an 11-month low in July.

The fall in consumer prices comes one day after the government reported a decline in wholesale prices.

Falling prices raise worries of a deflationary spiral in which consumers and businesses hold off on spending because of expectations of further price declines.

"Today's US reports provided an unpleasant close to a dismal week of data," said Mike Englund, chief economist at Action Economics in Boulder, Colorado.

"The mix leaves an unwelcome lull in activity in the second quarter that has apparently extended into the first month of the third quarter."

General Electric, the largest US conglomerate, and top US financial groups Bank of America and Citigroup  all reported declines in quarterly revenues from the prior year.

The revenues, which investors viewed as key to providing insight into future performance, offset the good news of rising profits.

"The next step for earnings has to be top line or revenues, and revenues slowed down along with the consumer and the economy in the second quarter," said Gail Dudack, chief investment strategist at Dudack Research Group in New York.

At the close, the Dow Jones industrial average fell 261.41 points, or 2.52 percent, at 10,097.90. The Standard & Poor's 500 Index lost 31.60 points, or 2.88 percent, at 1,064.88. The Nasdaq Composite Index dropped 70.03 points, or 3.11 percent, at 2,179.05.

For the week the Dow fell 0.98 percent, the S&P 1.24 percent, and the Nasdaq 0.79 percent.

GE shares fell 4.6 percent to US$14.55; Bank of America lost 9.2 percent to US$13.98; Citigroup lost 6.3 percent to US$3.90.

The two banks also posted profit declines.

"We're at a point where the economy is supposed to be getting stronger, but companies are finding it hard to do about-faces in their revenue," said Bruce Zaro, chief technical analyst at Delta Global Advisors in Boston.

European equities fell to a one-week closing low, felled by weak bank shares. The pan-European FTSEurofirst 300 index of top shares fell 2 percent to 1,012.94 points.

"The central issue is which factors have the stronger effect on equity markets: the positive reports on earnings or the burden due to weaker leading indicators? We think that the negative effects from weaker economic indicators will dominate," said Tammo Greetfeld, equity strategist at UniCredit in Munich.

Oil giant BP's New York-listed shares lost ground, falling 4.68 percent to US$37.10 while its London-listed shares closed up 1.34 percent. The US shares had risen on Thursday after news it plugged the oil leak that began in April.

The MSCI world equity index fell 2.06 percent while the Thomson Reuters global stock index lost 2.11 percent.

Asian stocks fell, with Japan's Nikkei average dropping nearly 3 percent for its worst one-day percentage loss in more than a month.

Greenback down

The US dollar, while under selling pressure, did rise from session lows as investors fled stocks for US Treasuries.

The greenback slid 0.88 percent to 86.68 yen, off an earlier seven-month low.

The euro touched a two-month high above US$1.30 on rising European money market rates, but slipped back as investors bet the rise was overdone. The euro last traded down 0.12 percent at US$1.2922. Earlier it had reached a two-month high of US$1.3007.

Receding concerns about euro-zone sovereign debt problems have buoyed the euro after smooth absorption of some euro-zone government bond auctions earlier this week.

"The euro is still relatively well bid and I would not be surprised to see 1.3200 next week as people continue to want to get out of these mature short positions," said John McCarthy, director of foreign exchange trading at ING Capital Markets in New York.

"It just got a little too far, too fast."

US benchmark Treasuries rallied on the safe-haven sentiment.

The benchmark 10-year Treasury rose 18/32 of a point in price to pull the yield down to 2.93 percent. The two-year Treasury rose 1/32, yielding 0.593 percent after falling to a record low of 0.58 percent on Thursday.

European government debt rose on the US data. The September Bund future rose to 129.16, up 36 ticks on the day, compared with 128.80 before the data.

Crude oil settled down 61 cents to US$76.01 per barrel, and spot gold prices dropped US$15.75 to a one week low of US$1,193.00.

- Reuters