January 30, 2020 / 5:13 PM / a month ago

GLOBAL MARKETS-Stocks, oil tumble on fears virus to hurt China's economy

(Adds U.S. market open, byline, dateline; previous LONDON)

* Virus toll rises

* Economists slash China growth forecasts

* U.S. yield curve inverts as safe-haven assets sought

* Oil falls over 2%

By Herbert Lash

NEW YORK, Jan 30 (Reuters) - Global equity markets tumbled on Thursday as the death toll from the coronavirus outbreak in China hit 170, sending a closely watched bond indicator to invert and oil prices sharply lower on concerns about its impact on the world’s second-largest economy.

The safe-haven Japanese yen and the Swiss franc gained as the number of people infected by the virus surpassed 8,100 people globally, or more than the total from the 2002-2003 SARS epidemic in a fast-spreading health crisis.

Damage to the economy is still hard to assess, but Wall Street economists see slower Chinese growth. Fitch Solutions said it maintains its real GDP growth forecast for China at 5.9% for 2020, but said it could drop to 5.4% because of the virus.

The International Monetary Fund said it is closely monitoring the outbreak but that it is too soon to quantify the potential economic impact of the virus, which has halted tourism and commerce throughout China.

The Dow Jones Industrial Average fell 84.24 points, or 0.29 percent, to 28,650.21, the S&P 500 lost 14.59 points, or 0.45 percent, to 3,258.81 and the Nasdaq Composite dropped 44.62 points, or 0.48 percent, to 9,230.54.

Yields on U.S. Treasuries dipped to three-month lows and a closely watched part of the yield curve briefly inverted as concerns about the virus’ impact weighed on risk appetite.

Investors remain confused as to how much strength the economy has, yet they continue to own stocks because the alternatives do not seem attractive, said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey.

“We continue to vacillate between the view that we’re headed toward recession and that we’re going to have economic growth,” Meckler said. “There are times like today where the virus seems like it could push us back toward weakness.”

Major equity indexes slid across the globe, with the decline sharper in Asia and Europe than on Wall Street.

MSCI’s broadest index of Asia-Pacific shares outside Japan closed 2.51% lower, while emerging market stocks lost 2.61%.

The pan-European STOXX 600 index lost 1.14% while MSCI’s gauge of stocks across the globe shed 0.91%. The world index is 55% U.S. weighted.

Shares in London fell 1.43%, extending losses as the pound climbed against the dollar after the Bank of England kept interest rates unchanged.

Disappointing earnings in Europe weighed on blue-chip stocks, adding to the gloom. Royal Dutch Shell fell 4.8% before clawing back some losses after fourth-quarter profit halved to its lowest in more than three years.

U.S. companies continue to produce earnings that are stronger than European results, leading Wall Street to be better positioned to weather any economic impact, Meckler said.

Yields on the benchmark 10-year U.S. Treasury note fell two basis points to 1.57% and slipped to 1.55% overnight, the lowest since Oct. 10.

The closely watched yield curve between three-month bills and 10-year notes inverted for the second time this week, a bearish signal for the economy.

German government bond yields fell sharply, with 10-year German bund yields dropping to a three-month low.

The dollar fell on news the U.S. economy posted its slowest annual growth in three years in 2019 and personal consumption weakened dramatically, ending the currency’s rally on safe-haven demand from investors nervous about the fallout from the virus.

The dollar index had gained 0.65% in the last two weeks as investors sold off risk assets on coronavirus fears. Those fears continue to persist, boosting the Japanese yen and Swiss franc, but the U.S. economic data was bleak enough to depress the dollar’s safe-haven appeal.

The dollar index fell 0.14%, with the euro up 0.18% to $1.1029.

The yen strengthened 0.24% versus the greenback at 108.76 per dollar.

Oil prices fell 2% to the lowest in three months on concerns

over the virus’ economic impact, while traders also considered the possibility of an early meeting or the Organization of the Petroleum Exporting Countries.

Brent crude fell $1.07 to $58.74 a barrel while U.S. crude fell $1.01 to $52.32 a barrel. (Reporting by Tom Wilson in London, Tom Westbrook in Singapore, Swati Pandey in Sydney; Editing by Jacqueline Wong, Andrew Cawthorne,Timothy Heritage and Diane Craft)

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