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A US stocks rally fizzled out Thursday as economic data strengthening the case for a September US rate cut sparked worries about the economy slowing too much, while European stocks slumped on disappointing bank earnings.
Wall street's main indices had risen at the start of trading, with shares in Meta jumping 8.8 percent after it reported a better-than-expected $13.5 billion profit for the second quarter and issued upbeat revenue guidance.
Investors had recently displayed concern that the tech stocks which have fuelled the market rally this year had become overvalued, but the gains have returned this week.
Shares in Nvidia, which makes computer chips prized for powering artificial intelligence applications, soared 12.8 percent Wednesday on reports US chip sanctions on China would not be as severe as expected.
US stocks also got a boost on Wednesday when US Federal Reserve chair Jerome Powell signalled the central bank could cut interest rates as soon as September.
"Fed Chair Powell noted yesterday that a discussion of a rate cut would be on the table at the September FOMC meeting if the Fed gets the data it hopes it will get," said Briefing.com analyst Patrick O'Hare.
It got some of that data Thursday with a report showing that first-time requests for unemployment benefits rose last week, as did continuing claims.
"The key takeaway from the report is the rising level of initial claims -- a leading indicator -- which connotes some softening in the labor market that is expected to curtail discretionary spending activity," O'Hare said.
"The latter point notwithstanding, market participants are still smitten more by the possibility of rate cuts than they are struck by the possibility of earnings disappointing with an economic slowdown," he added.
But that didn't last, with Wall Street's main indices turning lower after US manufacturing activity contracted more sharply than expected last month.
"It has been gloomy for two years in the manufacturing sector, but today's ISM report shows that various measures of activity have sunk to levels not seen since the initial arrival of the pandemic," Well Fargo economists wrote in an investor note.
"Most troubling is that this suffering comes without the merit of lower prices," they said.
Meanwhile, the Bank of England cut its main interest rate for the first time since the Covid pandemic broke out in 2020, reducing borrowing costs by a quarter-point to 5.0 percent.
The decision hurt the pound but was not enough to save London stocks, which fell victim to a downward shift across Europe, where hotter-than-expected eurozone inflation raised uncertainty whether the European Central Bank would cut interest rates in September after doing so in June.
Both Frankfurt and Paris stocks finished more than two percent lower.
Asset manager Adrien Roure at Indosuez noted high volatility in European trading and said investors were being influenced "by company results today, particularly in the banking sector".
Shares in French bank Societe Generale slumped 8.9 percent as it cut its earnings guidance.
British bank HSBC saw its shares fall 6.9 percent, Lloyds 5.3 percent and Barclays 4.6 percent.
In Italy, UniCredit fell 5.7 percent and Intesa Sanpaolo shed 3.9 percent.
Spanish banks Banco de Sabadell fell 5.6, BBVA 5.0 percent and Santander 4.2 percent.
- Key figures around 1530 GMT -
New York - Dow: DOWN 1.2 percent at 40,344.84 points
New York - S&P 500: DOWN 0.8 percent at 5,476.20
New York - Nasdaq Composite: DOWN 1.2 percent at 17,388.85
London - FTSE 100: DOWN 1.0 percent at 8,283.36 (close)
Paris - CAC 40: DOWN 2.1 percent at 7,370.45 (close)
Frankfurt - DAX: DOWN 2.3 percent at 18,083.05 (close)
EURO STOXX 50: DOWN 2.2 percent at 4,765.72 (close)
Tokyo - Nikkei 225: DOWN 2.5 percent at 38,126.33 (close)
Hong Kong - Hang Seng Index: DOWN 0.2 percent at 17,304.96 (close)
Shanghai - Composite: DOWN 0.2 percent at 2,932.39 (close)
Dollar/yen: UP at 150.47 yen from 149.88 yen on Wednesday
Euro/dollar: DOWN at $1.0793 from $1.0828
Pound/dollar: DOWN at $1.2799 from $1.2858
Euro/pound: UP at 84.33 pence from 84.19 pence
West Texas Intermediate: DOWN 0.6 percent at $77.48 per barrel
Brent North Sea Crude: DOWN 0.4 percent at $80.56 per barrel
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J.P.Estrada--TFWP