Global investors braced for a fresh slew of US economic news this week, including retail sales and producer prices, after a surprise jump in US jobless on Friday helped drive the Standard & Poor's 500 to its lowest in almost three years.
Investors will also scour a US report on industrial production and capacity utilization for clues to an economic recovery. Retail sales, producer prices and industrial output are all set for release on Friday to cap what is shaping up to be another tempestuous week on the markets.
Adding to jitters is the approach of another avalanche of US corporate performance news and speculation the US Federal Reserve may have to cut rates for the eighth time this year.
"This week can be a climactic week for the market, in terms of the indexes breaking down substantially, and pessimism building as it did in late March and early April," said Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum in the US.
Asia's largest share market, Tokyo, started the week ominously, ending at a fresh 17-year closing low, jolted by a jump in the US jobless rate on Friday to a four year high and worries that the world would not escape a recession.
The unnerving US unemployment news followed hard on the heels of Japanese gross domestic product figures which showed the economy shrank 0.8 percent in real terms in the April-June quarter from the previous quarter.
But investors may take heart from encouraging comments by the US and Japan at a weekend meeting of Asia-Pacific Economic Cooperation countries in Suzhou, China.
US Treasury Secretary Paul O'Neill said the US economy was on the road to recovery. "I think the correction process is going on ... and that we're going to see a return to some much better rate of growth as we go through the year and into next year," he said.
Japanese Finance Minister Masajuro Shiokawa said the second quarter economic contraction was "transitory" and the government hoped to put the economy back on a growth path.
Following the poor economic numbers on Friday, Japan's Prime Minister Junichiro Koizumi said he would compile a supplementary budget and details could emerge on Tuesday this week.
The Wall Street outlook will not only be clouded by the flurry of economic data this week, but investors will be on guard for the next corporate earnings bombshell, as the so-called "pre-announcement" season heats up before going into high gear next week.
"The market is going to have to deal with companies continuing to talk down earnings for the rest of the year," said Henry Herrmann, chief investment officer of Kansas-based Waddell & Reed, which manages about US$32 billion.
US stocks dropped on Friday, with the Dow Jones industrial average slumping 2.39 percent, to 9,605.85 and the US NASDAQ Composite Index losing 1.05 percent to 1,687.70. The tech-heavy index tumbled 6.5 percent during the week.
In Japan, brokers say Tokyo's benchmark Nikkei average could tumble below the key 10,000 mark amid concerns over a wilting global economy, dwindling profits and increased selling by banks ahead of their book closings.
"GDP figures hammered home how weak the economy is and the stock market should continue to mirror that malaise. Investors should not deny the possibility of a dip below 10,000," said Yuji Nakamura, strategist at Shinko Investment Trust Management, which oversees ?2.73 trillion (US$22.75 billion) of investment trusts.
US Treasuries in Tokyo were little changed after surging in the US on Friday, pushing two-year note yields to historic lows after the US jobless report raised hopes for another Federal Reserve interest rate cut in October.
A volatile session on the stock market triggered safe-haven flows from equities into risk-free government securities.
"You've got the Fed in a box," said Andrew Brenner, head of institutional fixed income at Investec Ernst & Co in New York. "They have to continue to ease and everyone knows that."
The dollar stayed under pressure in the aftermath of the jump in US jobless, but jitters over another slide in Tokyo stocks were holding the yen back.
Among leading Asian markets, Tokyo's benchmark Nikkei average shed 3.05 percent or 321.10 points to 10,195.69, a fresh 17-year closing low. The broader TOPIX index gave up 2.30 percent or 24.85 points to 1,055.98.
Hong Kong stocks fell nearly two percent just after the opening, tracking Wall Street on growing fears about the US economy. But the Hang Seng Index recovered to stand down just 0.10 percent, or 10.69 points at 10,373.51 after hitting 10,177.51, its lowest level since March 1999.
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