Subdued US growth weighs on world markets

By PAN PYLAS AP Business Writer

LONDON (AP) - European stock markets and Wall Street futures dropped further Friday after figures showed that the moderation in U.S. economic growth during the second quarter was greater than expected.

In Europe, the FTSE 100 index of leading British shares was down 35.83 points, or 0.7 percent, at 5,278.12 while Germany's DAX fell 58.59 points, or 1 percent, at 6,076.11. The CAC-40 in France was 27.34 points, or 0.8 percent, lower at 3,642.57.

Wall Street was also expected to drop at the open - Dow futures were down 95 points, or 0.9 percent, at 10,314 while the broader Standard & Poor's 500 futures fell 8.8 points, or 0.8 percent, to 1,088.20.

The losses swelled after the Commerce Department confirmed that the recovery in the U.S. lost momentum in the second quarter as growth slowed to an annualized pace of 2.4 percent. That was its most sluggish showing in nearly a year and even lower than market expectations of a 2.6 percent increase.

Some of the disappointment though was tempered by revisions showing that the U.S. economy grew at a 3.7 percent pace in the first three months of this year, a full percentage point more than the previous estimate last month.

Nevertheless, the current market concern is that the U.S. economy is stalling and that the level of growth isn't high enough to start getting unemployment down.

"Data revisions have altered the cyclical profile but don't change the story that the pace of recovery is now slowing," said Neil MacKinnon, global macro strategist at VTB Capital.

Concerns about the U.S. economy have increased through the week, as a run of disappointing economic data was capped by a warning from the U.S. Federal Reserve that the U.S. economy is losing its momentum.

The GDP data is particularly backward-looking and investors are already turning their eyes towards next week's U.S. nonfarm payrolls data for July. Always a driver for markets, the July data could set the tone for the rest of the summer months.

The dollar has borne the brunt of market concerns about the pace of the U.S. economic recovery. On Thursday, the euro managed to hit a new 11-week high of $1.3106.

By mid afternoon London time, the dollar was back under pressure - in the immediate aftermath of the data, the euro spiked up to $1.3050 from $1.3023 before.

With the focus so heavily on the U.S. data, there's been little market impact to another array of positive earnings, from the likes of Japanese electronics companies Samsung and Sony, British Airways and French electronics firm Alcatel-Lucent.

Earlier in Asia, Japan's Nikkei 225 stock average dropped 158.72 points, or 1.6 percent, to 9,537.30 for a second straight day of decline. The Nikkei was hit again by the continuing export-sapping appreciation of the yen. A strong yen also reduces the value of profits brought back from overseas - a major concern for Japanese exporters this year.

By mid afternoon London time, the dollar was 0.9 percent lower at 86.09 yen.

Elsewhere, South Korea's Kospi declined 0.7 percent to 1,759.33 and the S&P/ASX 200 in Australia fell 0.7 percent to 4,493.50. China's Shanghai Composite Index gave up 0.4 percent to 2,637.50 and benchmarks in Taiwan, Singapore and Indonesia also retreated. Markets in Malaysia, New Zealand and Vietnam rose.

Benchmark crude for September delivery was down 48 cents at $77.78 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.37 to settle at $78.36 on Thursday.