Stocks down again despite positive economic news
— -- Stocks trimmed their losses Monday after a report showed manufacturing grew at a faster pace in September than in August. Stocks initially followed European markets lower on the first day of the new quarter
European indexes fell broadly Monday on new concerns about the possibility of Greece defaulting on its bonds. The country's government said Sunday said that it will miss deficit reduction targets for the next fiscal year that it had agreed to as part of its bailout deal. Benchmark indexes in Germany, France, and Spain fell more than 2%.
Investors will be looking at a key U.S. manufacturing index and construction spending figures that will be released at 10 a.m. ET. Economists expect the Institute for Supply Management's September index to show that manufacturing activity barely grew for the third straight month. Construction spending figures are also expected to show that the industry continues to decline. Analysts are predicting that overall construction spending was about half of the $1.5 trillion pace that is considered healthy.
Concerns that the U.S. economy is headed for another recession helped send the S&P 500 index, the basis for most mutual funds that invest in U.S. stocks, down 14% over the three months that ended in September. It was the worst quarterly performance for the stock market since the financial crisis of 2008.
The Dow Jones industrial average dropped 240.60 points, or 2.2%, to 10,913.38 on Friday to close out the third quarter.
On Sunday, Greece's finance ministry said the deficit this year will likely be 8.5% of its gross domestic product, higher than the 7.8% previously anticipated, and blamed a deeper-than-expected recession for the failure. The Greek economy is projected to shrink 5.5% this year.
The revelation that Greece is finding it increasingly difficult to reduce its borrowings in spite of all its austerity measures has raised fears that international creditors will effectively pull the plug.
Without the latest 8 billion euro ($10.8 billion) loan, Greece has said it won't be able to pay all its bills starting in mid-October.
Greece has been reliant since May 2010 on regular loans from a 10 billion euro ($150 billion) bailout from other eurozone countries and the International Monetary Fund. It was granted a second 9 billion euro package in July, but the details of that deal are still being worked out.
Under the first bailout, Greece has to achieve certain targets in order to get the cash it needs to pay off its bondholders and pay salaries and benefits. Representatives of the so-called troika — the European Commission, European Central Bank and IMF— are in Athens now, trying to assess whether Greece has done enough to get its hands on the next batch of bailout cash.
Finance ministers from the 17 euro countries, including Greece's Evangelos Venizelos, are meeting later Monday in Luxembourg to assess the latest Greek developments.
"Greece continues to be the major source of market angst as we head into the final quarter of 2011," said Michael Hewson, market analyst at CMC Markets. "Today's meeting of finance ministers will continue to delay the inevitable and look at ways and means of avoiding a Greek default."
In Europe, Germany's DAX was down 2.4% at 5,372 while the CAC-40 in France fell 2.2% to 2,916. The FTSE 100 index of leading British shares was 1.9% lower at 5,030.
Worries over Greece were taking a particular toll on Europe's banks as investors worry about their potential exposure to Greek debt and about the possibility of a disorderly debt default by the country.
Dexia, which is based in France and Belgium, was one of the worst performing stocks in Europe, trading as much as 14% lower, after ratings agency Moody's said it was reviewing its rating for a possible downgrade and reports that the finance ministers from France and Belgium were discussing ways of helping the bank out.
With so many worries around, the euro was trading 0.5% lower at $1.3334.
The losses in Europe followed a big retreat in Asia, with Hong Kong's Hang Seng leading the way lower with a 4.4% decline to 16,822.15. Japan's Nikkei fell 1.8% to 8,545.48 even after a government survey showing an improvement in business confidence among Japanese manufacturers. Meanwhile China's main index in Shanghai declined 0.3% to 2,359.22.
The U.S. data this week culminates with Friday's nonfarm payrolls report for September. The figures often set the tone in markets for a week or two and another weak number could well reinforce concerns over the world's largest economy.
Central banks in Europe will also feature, with both the European Central Bank and the Bank of England under pressure to do more to boost growth. A particularly grim eurozone manufacturing survey has added to expectations that the ECB will cut its main interest rate from the current 1.5% some time over the next couple of months.
Though inflation in both the eurozone and Britain are running uncomfortably above target, investors will be looking to see if the ECB reverses course and starts cutting rates, just two months after raising them, and if the Bank of England authorizes another monetary stimulus.
Oil prices tracked equities lower — benchmark oil for November delivery was down $1.31 to $77.89 per barrel in electronic trading on the New York Mercantile Exchange.