European Stocks Fall as Global Recovery Fears Weigh -- Update

By Josie Cox 

European equities suffered yet another beating Wednesday amid swelling fears about the global economic recovery in the aftermath of the International Monetary Fund slashing its growth outlook, with a particularly dreary view for Europe.

The Stoxx Europe 600--having already slumped on Tuesday following poor German economic data--closed 0.9% lower, while Germany's DAX 30, France's CAC 40 and the U.K's FTSE 100 all weakened.

In the U.S., equity indexes had deepened their recent losses in early trade.

"The mood is darkening rapidly" in global equities, said Kit Juckes, a macro strategist at Société Générale.

U.S. government debt--a typical retreat in times of stress--remained in demand, with 10-year U.S. Treasury yields, which fall as bond prices rise, steady at 2.34%. Later in the session, the Federal Open Market Committee is due to publish minutes from its latest meeting, which could shed more light on the central bank's planned timing for an interest rate hike.

On Tuesday, the IMF downgraded its outlook for global economic growth, saying it now expects the world's economy to grow by 3.8% next year, down from its July forecast of 4%, citing persistent weakness in the eurozone and a broad slowdown in several major emerging markets.

It specifically marked down prospects in the eurozone's three largest economies--Germany, France and Italy--and warned that the probability of the eurozone re-entering a recession in the next six months has roughly doubled since the IMF's April outlook to 38%.

"Overall, the report breaths a certain desperation about the state of the world economy," said Karl Steiner, a strategist at SEB.

Gary Jenkins, a credit strategist at LNG Capital, said that by trimming its outlook, the IMF's agenda might be to persuade the European Central Bank to resort to outright quantitative easing.

"When European politicians look at growth and employment figures in the U.S. and the U.K. they probably wonder why the eurozone isn't applying the same medicine of QE," Mr. Jenkins said.

A rally in the dollar paused Tuesday but has now resumed, with the euro and yen edging lower.

The Russian ruble hit fresh lows against major currencies despite the deployment of hundreds of millions of dollars by Russia's central bank of its foreign-exchange reserves to stem the decline.

Back in equity markets, Sierra Leone iron ore producer London Mining PLC was the stand out loser, with its shares sinking to around 1p, after the company warned that there could be "little or no value remaining in the equity" as it struggles to cope with weak iron ore prices and the Ebola outbreak.

"This looks like the end of the road for London Mining unless a new investor charges to the rescue," analysts at Numis, a brokerage, wrote in a note to clients.

Write to Josie Cox at [e-mail] and Tommy Stubbington at [e-mail]