Manufacturing woes

Stocks around the world dropped on Monday as weak manufacturing figures in the United States, China and Europe outweighed a breakthrough deal to raise the US debt ceiling to avoid default.

The Dow Jones Industrial Average and the S&P 500 both dipped following the release of key data, wiping out gains of 1 percent earlier in the morning.

Italian stocks dropped 3.9 percent, while Germany's bluechip DAX index showed a 2.9-percent loss to below the 7,000 mark for the first time since the end of March. Spain's main index lost 3.2 percent and France's CAC 40 dropped 2.3 percent.

Stocks had originally surged in early US trading, spurred by a deal between Democratic and Republican leaders to raise the federal debt ceiling in exchange for up to trillions of dollars in budget cuts. The US Treasury said failing to raise the debt ceiling before Tuesday would put the US in default.

Manufacturing stagnant

But despite the initial jump, stocks took a sharp downturn as new data revealed that US manufacturing was flat in July. The monthly manufacturing survey released by the Institute of Supply Management (ISM) showed a drop to 50.9 - its lowest level since July 2009 and barely above the 50 mark that separates growth from contraction.

"This is quite a disappointing number to digest," Millan Mulraine, a senior US macro strategist at the New York office of TD Securities told the Reuters news agency. "It shows that the economy is off to an equally weak start for the second half of the year. It's only one point, but it's one very important point nonetheless."

The data follows equally disappointing US GDP figures released last week that showed the economy grew at just 1.3 percent in the second quarter.

European manufacturing also took a hit in July, with the eurozone Purchasing Managers' Index (PMI) falling to 50.4 from 52 the month before. It was the lowest showing since September 2009. Data from the UK showed a similar decline.

Economists blame the slowdown in orders on the impact of austerity measures being implemented across the eurozone. "The debt issues [in the eurozone] are tough on the sector, more than the strength of the euro," Olaf Wortmann, economist at Germany's manufacturing association VDMA told the Reuters news agency.

China's PMI also fell, to 50.7 from 50.9 in June - its weakest level in two years. China's economic growth -in which manufacturing is a crucial factor - had been largely robust despite the global economic crisis.

Author: Andrew Bowen (AFP, Reuters)
Editor: Nicole Goebel