LONDON - An unexpected contraction in the U.S. economy at the end of 2012 weighed on markets Thursday ahead of closely-watched jobs figures.
The U.S. economy shrank by an annualized rate of 0.1 per cent in the fourth quarter, its first contraction since the middle of 2009, hurt by big cuts in defence spending, falling exports and sluggish growth in company inventories.
"That does appear to have knocked some of the stuffing out of the recent market rally," said Michael Hewson, market analyst at CMC Markets.
Following a buoyant start to the year, many stock indexes around the world are near multi-year highs and the Dow Jones index is not far off its all-time record. Further advances have proven tougher this week. Fairly disappointing earnings from the likes of Royal Dutch Shell and AstraZeneca did little to prompt much enthusiasm in Europe.
Britain's FTSE 100 fell 0.4 per cent to 6,299 while Germany's DAX shed 0.3 per cent to 7,786. The CAC-40 in France was 0.6 per cent lower at 3,742.
Wall Street was poised for a flat opening with both Dow futures and the broader S&P 500 futures unchanged.
The U.S., as has been the case for much of this year, will likely remain the focus of attention in markets for the rest of the week. Later, weekly jobless claims figures and a manufacturing survey of the Chicago region will be in focus as will the next round of U.S. corporate earnings from the likes of Mastercard and UPS.
A busy week on the data front culminates Friday with the January nonfarm payrolls figures. They often set the market tone for a week or two after their release but may garner more attention this month following Thursday's surprise news of the U.S. economic contraction.
"With payrolls due tomorrow there could well be a temptation for many to sit on the sidelines for a short while," said Fawad Razaqzada, market strategist at GFT Markets.
In a statement released after a two-day policy meeting Wednesday, the U.S. Federal Reserve acknowledged that the economy is still struggling to regain momentum. The central bank said that growth had "paused in recent months," and while it was taking no new action, it would keep buying $85 billion of bonds a month.
Earlier in Asia, the regional heavyweight, Japan's Nikkei 225 index, closed 0.2 per cent higher at 11,138.66, recovering from early morning losses sparked by lower-than-expected growth in December's industrial production. Output climbed a seasonally adjusted 2.5 per cent from November but most analysts had forecast an improvement of more than 4 per cent.
Hong Kong's Hang Seng fell 0.4 per cent to 23,729.53 while South Korea's Kospi shed 0.1 per cent to 1,961.94.
The tone in currency markets was fairly flat too, with the euro down a modest 0.1 per cent at $1.3561 and the dollar 0.1 per cent lower at 90.99 yen.
Oil prices tracked equities lower with the benchmark New York rate down 9 cents at $97.85 a barrel
Pamela Sampson in Bangkok contributed to this report.
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