U.S. and European stocks fell on Monday after the World Bank cut its growth forecast for China, emphasizing concerns about the strength of the global economy.
Jitters about the euro zone debt crisis knocked the euro down from two-week highs as euro zone officials gathered to launch the region's bailout fund.
The downward revision from the World Bank, which cut its growth expectations for the East Asia and Pacific region, added to the cautious tone in stocks heading into corporate earnings season, which starts in the United States on Tuesday.
Recent warnings from large multinationals such as FedEx Corp., Hewlett-Packard Co. and Caterpillar Inc. have already made investors wary.
"There is just a lot of uncertainty out there, so any little thing right now tends to be a bit of a drag. Some of it is China, some of it may be concerns about Europe again," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Ill.
The World Bank said there was a risk the slowdown in China could worsen and last longer than many analysts have forecast. Still, the international lender expects China to have a soft landing as seen from the bank's revised 7.7-per-cent growth forecast for this year and 8.1 per cent for next year.
The World Bank earlier this year had forecast 8.2 per cent GDP growth for China in 2012 and 8.6 per cent in 2013.
Wall Street was modestly lower in late morning trading, while European shares were down 0.9 per cent. World shares as measured by the MSCI world equity index were down 0.8 per cent.
The Dow Jones industrial average slipped 35.37 points, or 0.26 per cent, to 13,574.78. The Standard & Poor's 500 Index was down 6.34 points, or 0.43 per cent, at 1,454.59. The Nasdaq Composite Index lost 24.37 points, or 0.78 per cent, to 3,111.81.
The announcement from the World Bank deflated some of last week's positive sentiment in the markets spurred by an unexpected drop in the U.S. unemployment rate.
China's role as the last major growth engine in the world economy amplified the impact of the World Bank's forecasts in foreign exchange and commodity markets.
Fears that slower economic growth would curb oil demand initially sent Brent crude lower, but tension in the Middle East helped the commodity pare losses. Brent was little changed around $111.98 a barrel, while U.S. crude dropped 39 cents to $89.49 a barrel.
"The World Bank's pessimistic outlook for East Asian economies and warning that China's economic slump could deteriorate further ... had a hand in pushing prices lower," said David Wech, head of market analysis at Vienna-based consultancy JBC Energy.
Euro zone finance ministers said Spain was taking steps to overhaul its economy and did not need a bailout, at least for now.
Arriving at a meeting in Luxembourg to discuss Greece and Spain and to inaugurate the euro zone's permanent bailout mechanism, the ESM, German Finance Minister Wolfgang Schaeuble said Madrid had made clear it wanted no help.
Still, uncertainty over the next steps in solving the region's debt crisis, coupled with the weak economic outlook weighed on the euro, which was 0.4 per cent lower at $1.2973 .
The euro had hit two-week highs on Friday. The dollar was up 0.3 per cent against a basket of currencies.
In Europe, fresh data showed investor sentiment had improved for a second consecutive month in October thanks largely to the monetary easing by central banks and Germany's backing for a new permanent bailout fund for the European currency bloc.
German export data for August also surprised by jumping 2.4 per cent month-on-month, far outperforming expectations for a drop of 0.5 per cent in a Reuters poll of 17 economists.