LONDON (Reuters) - Uncertainty over central bank action to fight slower global growth pulled world shares lower on Thursday, but the euro edged up ahead of a meeting of central bankers in the United States and on signs of support for the region from China.
Markets are waiting to see whether U.S. Federal Reserve Chairman Ben Bernanke will provide any hints of a third round of quantitative easing (QE) at a meeting in Jackson Hole, Wyoming, on Friday.
“The risk with Jackson Hole is that unless there are further strong signals of more easing, the market will take it as a disappointment,” said Christian Lawrence, currency strategist at Rabobank, adding that this would, however, be positive for the dollar.
The euro was up 0.1 percent against the dollar at $1.2545, edging towards last week’s high of $1.2590, with any hint of Fed easing likely to weaken the greenback further.
A slight improvement in recent U.S. economic data has reduced such prospects, however, and some in the markets have even begun to question whether quantitative easing (QE) by the Fed would do much to help growth.
“When you look at the correlation between QE and GDP and jobs growth, it’s getting pretty weak,” said Alpesh Patel, founding partner of asset manager Praefinium Partners.
“In other words, the actual effects of QE are not sustained or sustainable, and therefore its impact is limited,” said Patel, who conceded that the Fed chief might still give a nod towards further easing when he speaks at the meeting on Friday to avert a big pullback in the markets.
The euro also gained after Chinese Premier Wen Jiabao, who met with German Chancellor Angela Merkel in Beijing on Thursday, said he was confident the euro zone could pull out of its debt crisis and that China was willing to keep buying the region’s government debt.
Wen said Beijing would step up talks with the European Union, the European Central Bank and the IMF - also known as the troika - to help struggling euro area nations.
Equity markets were in retreat ahead of the Jackson Hole meeting, with signs of flagging growth in the giant Chinese economy adding to worries about the economic outlook, which has also depressed demand for commodities like iron ore and steel.
“As investors count down the hours to Bernanke’s speech at Jackson Hole they are clearly not prepared to take any chances, preferring to look for safe havens where they can be found,” said Mike McCudden, head of derivatives at Interactive Investor.
“Furthermore, the ripple effect being felt from a stuttering China and the downturn in the Aussie mining industry will acutely impact the euro zone, which already has enough on its plate to contend with,” he said.
The growth concerns and falling commodity prices sent Asian shares to one-month lows on Thursday, and the main Australian share index dropped 1.2 percent to a two-week low as mining stocks like Rio Tinto (RIO.AX) were hit hard.
MSCI’s world equity index .MIWD00000PUS, which has edged down over the past seven sessions, was 0.25 percent lower on Thursday at 322.5 points.
U.S. stock index futures also pointed to a slightly lower open on Wall Street later in the day.
The FTSEurofirst 300 index .FTEU3 of top European shares was down around 0.3 percent in early trade, while Britain’s FTSE 100 .FTSE, with a heavy weighting of resources stocks, was down 0.5 percent at 5,716.62 points.
European share markets were also reflecting the uncertainty over the European Central Bank’s (ECB) next steps to tackle the region’s three-year old debt crisis.
The ECB is expected to unveil concrete plans next week to help bring down crippling borrowing costs in Spain and Italy at its policy meeting on September 6.
The prospects of fresh bond buying by the ECB encouraged solid demand at a sale of 7.3 billion euros of new five- and 10-year Italian sovereign bonds on Thursday.
A new 10-year bond, which carried a 5.5 percent coupon, sold at a yield of 5.82 percent and attracted bids worth 1.4 times the 4 billion euros of debt offered.
Italy’s main 10-year bond yield reversed early gains to fall 2 basis points after the sale to stand at 5.76 percent. This was seen as in line with normal moves ahead of any new supply. (Additional reporting by Jessica Mortimer and Tricia Wright.; Editing by Will Waterman)