European Stocks Hit by Growth Worries -- 3rd Update

By Tommy Stubbington 

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

The nerves persisted despite an opinion from a top European court that appeared to clear the way to a large-scale program of bond purchases by the European Central Bank, a ruling that supported broader stock indexes and pushed the euro to a nine-year low.

The resources stock 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 nearly 2% at $46.90 a barrel.

Mining stocks on the Stoxx Europe 600 index plummeted 5%, and oil and gas companies were down 1.5%.

Antofagasta PLC, a Chilean copper miner listed in London, tumbled 8%. Mining giants Glencore PLC, Anglo American PLC and BHP Billiton PLC all fell sharply. London's resource-heavy FTSE 100 fell 1.3%.

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.

Still, the shakeout stood in contrast to broader equity markets in Europe, which tumbled at the open but clawed back much of the lost ground after the European Court of Justice ruling.

An adviser to the ECJ 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 Stoxx Europe 600 was 0.4% lower midmorning, having fallen 1.5% in early trading.

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, an expectation that has buoyed up eurozone assets in recent weeks and sent the euro to a nine-year low on Wednesday.

Stocks in Italy and Spain, which are highly sensitive to QE expectations, led the bounce back in Europe. The euro, which has weakened in recent weeks on easing expectations, fell to $1.1725 against the dollar. Bonds in Italy and Spain also gained slightly.

Still, demand for high-grade government bonds remained strong, briefly pushing the yield on the 10-year U.S. Treasury bond to 1.85%, its lowest since May 2013, before rebounding to 1.89%. The equivalent German bond yield fell to 0.45%, close to its record low. Yields fall when prices rise.

The yen, another traditional safe harbor in times of stress, climbed to a one -month high. The dollar fell 0.8% against the Japanese currency to Yen116.54 before picking up to Yen117.06.

U.S. stock futures pointed to a 0.2% decline for the S&P 500 at Wednesday's open. Changes in futures aren't necessarily reflected in market moves after the opening bell.

Write to Tommy Stubbington at [e-mail]

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