Shares, euro fall as Europe's economy worsens - Oman Daily Observer

LONDON/hong kong — The euro hit a fresh 22-month low and European shares gave up early gains yesterday after data showed Europe's economic slump has worsened, as talk of a Greek exit and a lack of progress in tackling the debt crisis hits business confidence.
Germany's manufacturing sector shrank at the fastest rate in three years in May, the Markit manufacturing Purchasing Managers Index (PMI) showed, as both exports and new orders coming into factories declined.
"May's drop in manufacturing production was the steepest in nearly three years and the current period of falling new orders now almost matches the length, though not the depth, of the contraction in 2008/09," Tim Moore, senior economist at Markit, said.
German business sentiment has also dropped for the first time in seven months, missing even the most conservative forecasts, the Munich-based Ifo think-tank said.
PMI data for the whole euro area, showing activity was declining at a faster pace than expected, confirmed the view that a downturn which started in smaller periphery members is taking root in the core countries of Germany and France, whose tepid growth had been keeping the troubled bloc afloat.
German Bund futures, which have tracked the flight to safety by investors, rose to record highs after data and a rush by investors into dollars pushed the currency's index against other major currencies to its highest level in 20 months, rising 0.2 per cent 82.25.
The euro dropped to $1.2540, its lowest level since July 2010.
German 10- and 30-year bond yields also hit record lows and UK Gilt futures, another safe haven, rose to a contract high of 119.77.
At the same time Asian markets were mostly lower yesterday and the euro hit a 22-month lows against the dollar after European leaders failed to agree a plan to save Greece from exiting the euro zone.
While a summit in Brussels saw a pledge of support for Athens it highlighted divisions between France and Germany on dealing with the crisis that threatens to rupture the euro project.
Hong Kong shares closed at their lowest level in nearly five months after tepid results of a private survey on Chinese industry did little to tempt nervous investors back into the market. The Hang Seng Index ended 0.6 per cent down at 18,666.4, the lowest close since January 6. The index is now up 1.3 per cent on the year. yesterday's turnover was 10 per cent below the 20-day moving average.
Europe's debt problems also kept investors away, with signs that the region's leaders were unable to deliver meaningful measures to resolve the crisis, heightening the risk of Greece leaving the currency bloc.
The HSBC Flash Purchasing Managers Index, the earliest indicator of the strength of China's industrial sector, retreated to 48.7 in May from 49.3 the month before, pointing to lingering weakness even as policymakers seek to shore up growth.
Its impact on markets was not significant, partly because worse than expected official April data had stunned markets, with benchmark indices in Hong Kong sinking more than 7 per cent since then.
Mainland Chinese markets were also weaker, with the large cap-focused CSI300 Index down 0.8 per cent. The Shanghai Composite Index shedding 0.5 per cent in bourse volume that was 16 per cent below its 20-day average.
The China Enterprises Index of the top Chinese listings in Hong Kong slipped 0.3 per cent. It has fallen 13 of the last 16 trading days, while the Hang Seng has declined in 14 out of 16 sessions.
The MSCI China Index dropped 0.6 per cent and is now down 0.2 per cent on the year. According to Thomson Reuters I/B/E/S, it is currently trading at 8.6 times forward 12-month earnings, the lowest this year and a 30 per cent discount to its average over the past decade.
"Investors with a longer time horizon with a bigger tolerance for volatility could be persuaded, but it's not a good time now to buy on the dip despite historically cheap valuations," said Alan Lam, Julius Baer's Greater China equity analyst.
He added that low turnover and increased short-selling interest could prod Hong Kong markets lower. Shorting interest in Hong Kong accounted for almost 15 per cent of total bourse turnover yesterday, the highest since February 1999.
Chinese energy majors were broadly weaker. PetroChina lost 0.6 per cent in Hong Kong and 0.5 per cent in Shanghai. China Shenhua Energy Co Ltd declined 1.3 per cent in Hong Kong.
China Railway rose 2.4 per cent in strong volume in Hong Kong, bringing its weekly gains to more than 11 per cent on a succession of policy announcements. Deutsche Bank made the stock one of its top picks in an upgrade of the sector yesterday.
— Agencies