NEW YORK: U.S. and European stocks dropped on Thursday, Aug 5 after an unexpected rise in weekly U.S. jobless claims underscored the weakening economy, and the euro ended slightly stronger against the dollar a day ahead of the U.S. government's monthly payrolls report.
The number of Americans making new claims for jobless benefits rose by 19,000 to 479,000 in the week ended July 31 -- the highest level in nearly four months. The news, coming a day ahead of the U.S. government's closely watched monthly payrolls report, put investors on edge, as stubbornly high unemployment has fueled concerns on sustainable global growth.
Treasuries prices rose on a safety bid as investors braced for the employment report, and oil and commodity prices slipped on slowing demand. Copper prices were also hit by worries about the outlook for the real estate market in China, the world's largest consumer of the industrial metal.
China's banking regulator ordered lenders to test the impact of a fall in house prices of up to 50 percent in key cities where prices have risen sharply, banking and regulatory sources said on Thursday.
But the U.S. labor market stole the spotlight on Thursday following the surprisingly weak jobless claims report.
"The claims data today was miserable and obviously it has a negative implication for the non-farm number tomorrow," said Phil Orlando, chief equity market strategist at Federated Investors, in New York.
"But the important thing tomorrow is going to be what are the organic, permanent underlying trends in private payroll, manufacturing payrolls, household survey, etc."
Economists polled by Reuters expect Friday's U.S. Labor Department report to show a drop of 65,000 in non-farm payrolls in July, hurt by the unwinding of the government's hiring for the census. Private employers are expected to have added 90,000 jobs.
The Dow Jones industrial average was down 5.45 points, or 0.05 percent, at 10,674.98. The benchmark Standard & Poor's 500 Index was down 1.43 points, or 0.13 percent, at 1,125.81. The Nasdaq Composite Index was down 10.51 points, or 0.46 percent, at 2,293.06.
Weakness in consumer spending trends also stayed in focus as the 28 retailers tracked by Thomson Reuters reported July same-store sales that rose only 2.9 percent -- falling short of analysts' expectations for a 3.1 percent gain.
Shares of department store operator JC Penney Co Inc fell 7.7 percent to $22.12 while youth-oriented apparel chain Aeropostale Inc slumped 5.7 percent to $25.88.
"The sales data was unimpressive and points to a consumer who is tapped out," said Joseph Battipaglia, market strategist at Stifel Nicolaus in Yardley, Pennsylvania. "If payrolls don't increase and incomes don't rise, it's going to be a bleak picture for retailers for the rest of the year."
Global equities measured by the MSCI All-Country World Index were up slightly, climbing 0.14 percent, while the Thomson Reuters global stock index rose 0.10 percent.
European shares closed lower. The pan-European FTSEurofirst 300 index of top shares shed 0.23 percent to 1,068.58 points, slipping from three-month highs hit earlier in the session.
Higher-than-expected profits from Barclays and Commerzbank failed to dispel concerns over the underlying health of Europe's top banks. The lenders shed 4.7 and 2.2 percent, respectively.
Japan's Nikkei closed up 1.7 percent, helped by top carmaker Toyota Motor Corp, which reported its best operating profit in two years.
SUMMER LOVE FOR EURO
After a volatile session, the euro ended the day slightly stronger against the dollar as investors positioned themselves ahead of the U.S. payrolls report.
The currency got a nice boost earlier Thursday by solid German industrial data and signs that Spain and Greece were making progress in trimming budget deficits.
The euro was up 0.21 percent at $1.3186. Earlier it rose to $1.3234 after the U.S. jobless claims data.
A strong debt auction in Spain and a vote of confidence from the International Monetary fund in Greece's efforts to cut the deficit also boosted euro buying during European trade.
Spain sold 3.5 billion euros in three-year bonds at a lower yield than a previous auction in June, suggesting solid demand as it copes with fiscal problems.
Earlier, both the Bank of England and the European Central Bank kept interest rates unchanged, as expected.
The ECB president, Jean-Claude Trichet, said third-quarter euro zone economic data has come in stronger than expected so far but the central bank still expects the bloc's economic recovery to be moderate and uneven.
Conversely, the dollar was down against a basket of major trading-partner currencies, with the U.S. Dollar Index dipping 0.16 percent at 80.766 from a previous session close of 80.892. Against the Japanese yen, the dollar was down 0.57 percent at 85.79 from a previous session close of 86.280.
U.S. Treasury debt prices were higher.
The benchmark 10-year U.S. Treasury note was up 13/32, with the yield at 2.91 percent. The 2-year U.S. Treasury note was up 2/32, with the yield at 0.53 percent. The 30-year U.S. Treasury bond was up 15/32, with the yield at 4.06 percent.
In energy and commodities prices, U.S. light sweet crude oil fell 43 cents, or 0.52 percent, to $82.04 per barrel, but spot gold prices rose 40 cents, or 0.03 percent, to $1195.60. The Reuters/Jefferies CRB Index was down 1.31 points, or 0.47 percent, at 277.67. - Reuters
