LONDON – Markets brushed aside figures showing that the U.S. economy grew less than expected at the end of 2010 as investors kept a close watch on growing street protests in Egypt.
Stocks fell and the dollar, in particular, was getting a lift against the euro from its supposed safe haven status in light of the unrest in Egypt and the potential for further developments over the weekend, in the wake of upheavals that saw Tunisia's longtime president flee the country Jan. 14.
Simon Derrick, a senior analyst at Bank of New York Mellon, said investors are aware that in a crisis, events can move faster than anticipated.
"This was true, for example, in September and October of 2008 in the aftermath of the collapse of Lehman Brothers and it was true in April and May of last year during the height of the Greek crisis," Derrick said. "It therefore appears sensible to note quite how swiftly the Tunisian revolt built and equally, how rapidly street protests emerged in the cities of Egypt."
Fitch Ratings lowered the outlook for the country's credit rating to negative and warned of a possible downgrade to the credit rating itself if the unrest intensifies. Richard Fox, the head of the Middle East and Africa desk at Fitch said the move to a negative outlook was due to the "recent upsurge in political protests and the uncertainty this adds to the political and economic outlook ahead of September's elections."
By mid-afternoon London time, the euro, which has been buoyant of late on hopes that Europe is finally getting a handle on its debt crisis, was down 0.4 percent at $1.3672.
With one eye on Egypt at least, the reaction to U.S. growth figures in stock markets was underwhelming.
The Commerce Department reported that the U.S. economy grew by an annualized rate of 3.2 percent in the fourth quarter. That was up on the previous quarter's 2.6 percent rate but below market expectations for a 3.5 percent increase.
Analysts said the shortfall from expectations was due to a big swing in inventory buildup from $121 billion in the third quarter to just $7.2 billion in the fourth.
Other components in the growth figures were relatively buoyant, particularly consumption growth.
"The U.S. economy bounced back in Q4, and that's good news no matter how you slice it," said Jennifer Lee, senior economist at BMP Capital Markets. "It's not a boom time but it is becoming more self-sustaining."
The fourth quarter figures also confirmed that the U.S. economy enjoyed its best year in five in 2010, growing by 2.9 percent.
And the U.S. is also widely expected to be one of the fastest-growing major economies in 2011 given ongoing stimulus measures, which stand in contrast to the austerity measures being pursued elsewhere around the world, notably in Britain and in a number of countries that use the euro.
In the U.S., the Dow Jones industrial average was down around 15 points at 11,975, having failed to sustain a break above 12,000 in early at just below 12,000 in early trading. The broader Standard & Poor's 500 futures fell a point to 1,298.54 — it too failed to sustain a breach above a key threshold, in its case the 1,300 mark.
In Europe, Germany's DAX fell 0.1 percent to 7,149 while the CAC-40 in France was 0.4 percent lower at 4,045.
The FTSE 100 index of leading British shares underperformed its peers, trading 0.6 percent lower at 5,926 following news that consumer confidence has slumped. The survey from GfK NOP stoked renewed fears that the British economy may fall back into recession after figures earlier this week showed an unexpected 0.5 percent drop in output in the last three months of 2010. A recession is officially classified as two consecutive quarters of negative growth.
Earlier, markets in Asia were rattled by the previous day's credit rating downgrade of Japan by Standard & Poor's. The rating given Japan on Thursday — its first downgrade in almost nine years — is the same rating given to China, Saudi Arabia and Kuwait. The news sent the dollar as high as 83.18 yen late Thursday from 82.20 yen. On Friday it was trading at 82.63.
Japan's benchmark Nikkei 225 stock average dropped 1.1 percent to close at 10,360.34 as traders reacted to the downgrade for the first time — markets had closed when S&P delivered its verdict. The dollar gave up its previous day's gains though, trading 0.6 percent lower at 82.34 yen.
Elsewhere, Australia's S&P/ASX 200 closed down 0.7 percent at 4,774.90 as the first estimates of the economic cost of east coast flooding — possibly the most expensive natural disaster in Australia's history — were released.
South Korea's Kospi declined 0.3 percent to 2,107.87 and Hong Kong's Hang Seng fell 0.7 percent to 23,617.02. Shares in Indonesia and Thailand were all lower.
China's Shanghai Composite index gained 0.1 percent to 2,752.75. Benchmarks in Taiwan and New Zealand were also higher.
Benchmark crude for March delivery rose $1.41 to $87.05 a barrel in electronic trading on the New York Mercantile Exchange.
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Carlo Piovano in London and Pamela Sampson in Bangkok contributed to this report.
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