European Stocks Hit by Growth Worries -- 5th Update

By Tommy Stubbington 

Worries about slowing global growth whacked stocks in Europe on Wednesday and sent investors into the safety of government bonds, with a fresh slide in copper adding to jitters.

The slump came after the World Bank on Tuesday cut its outlook for global growth in 2015 and 2016, fanning concerns that falling energy and metals prices are a symptom of weakening demand.

Copper has now joined the rout, with prices plunging to their lowest level in more than five years, while oil prices continued to fall, with Brent crude down 0.8% at $47.42 a barrel.

The Stoxx Europe 600 closed 1.5% lower, as mining stocks on the index plummeted more than 5%.

Mining giants Glencore PLC, Anglo American PLC and BHP Billiton PLC all fell sharply. London's resource heavy FTSE 100 fell 2.4%.

The selloff intensified as a sharper than expected decline in U.S. retail sales reminded investors that the world's largest economy isn't immune to weakness elsewhere.

The S&P 500 was 1.2% lower as European markets closed.

While cheaper energy and industrial metals are good news for consumers in the U.S. and particularly Europe, they also raise concerns about the health of the global economy, noted Julian Chillingworth, chief investment officer at Rathbones, which manages GBP26.3 billion ($39.9 billion) of assets.

"This is also about demand. Weaker growth in China and slow growth in the eurozone are part of what's hurting commodities," he said.

Demand for high-grade government bonds soared, pushing the yield on the 10-year U.S. Treasury bond to 1.79%, its lowest since May 2013. The equivalent German bond yield fell to 0.43%, a record low. Yields fall when prices rise.

The yen, another traditional safe harbor in times of stress, climbed sharply to a one-month high of Yen116.12 to the dollar.

The euro and the British pound also chalked up smaller gains against the buck.

The nerves overshadowed an opinion from a top European court that appeared to clear the way for a large scale program of bond purchases by the European Central Bank, a ruling that had briefly pushed the euro to a nine-year low against the dollar.

An adviser to the European Court of Justice said the ECB can buy large quantities of eurozone government debt to stabilize the currency area's economy, delivering a key legal endorsement for the central bank as it prepares another round of stimulus measures to fight deflation.

The ruling presents "no roadblocks" to a broader bond-buying program from the ECB, said Rabobank strategist Lyn Graham-Taylor.

Many investors think a so-called quantitative easing program will be announced later in January.

Write to Tommy Stubbington at [e-mail]

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