World stocks weak as stronger US economic data weighed against second debt warning

TOKYO - World stock markets sputtered Friday as investors weighed positive economic indicators against a new warning on U.S. debt.

In early European trading, Britain's FTSE 100 fell 0.5 per cent to 5,815.75, France's CAC 40 slipped 0.8 per cent to 3,722.98 and Germany's DAX shed 0.8 per cent at 7,160.35.

Futures pointed to a muted session on Wall Street. Dow futures were little changed at 12,384 and S&P futures dropped 0.2 per cent to 1,304.70.

Amid concerns about the U.S. government credit rating, investors had positive news about the American economy to partially counter that. U.S. retail sales unexpectedly rose in June while weekly jobless claims dropped by a surprisingly large 22,000 to 405,000.

Koji Takeuchi, senior economist at Mizuho Research Institute in Tokyo, said investors are watching for signs of a recovery in the U.S. economy and trying to gauge if the government debt crisis in Europe will worsen.

"Basically, a wait-and-see attitude is prevailing," he said.

Japan's Nikkei 225 stock average gained 0.4 per cent to close at 9,974.47, recovering slight losses with investors largely on the sidelines. July 18 is a national holiday in Japan that celebrates the ocean.

Toyota Motor Corp. inched down 0.3 per cent while Sony Corp. rose 0.7 per cent.

Hong Kong's Hang Seng lost 0.3 per cent to 21,875.38 while South Korea's Kospi rose 0.7 per cent to 2,145.20.

The Shanghai Composite Index added 0.4 per cent to 2,820.17. Australia's S&P/ASX 200 retreated 0.4 per cent to 4,473.50.

Credit rating agency Standard & Poor's said on Thursday that there is a 50 per cent chance it will downgrade the U.S. government's credit rating within three months because of the congressional impasse over approving an increase in the debt ceiling. The rating agency said it is placing the United States on a credit watch.

The S&P action marked the second credit warning in the past two days. On Wednesday, Moody's Investors Service said it is reviewing the government's triple-A bond rating.

"First you had Moody's. Now you have S&P. That has the markets spooked," said Todd Martin, Asia equity strategist for Societe Generale in Hong Kong. "There are more countering forces that have caused global equity markets to move sideways. I think it is more of a consolidation."

In the U.S. on Thursday, remarks by Federal Reserve Chairman Ben Bernanke that dimmed hopes for a third round of bond-buying dragged stocks lower. In a second day of testimony, Bernanke told lawmakers the Fed expects the economy to improve. He said the central bank would only step in with more economic stimulus if there is a significant downturn in the economy.

The Dow Jones industrial average fell 54.49, or 0.4 per cent, to 12,437.12 and the Standard & Poor's 500 index fell 8.85 points, or 0.7 per cent, to 1,308.87. The Nasdaq composite fell 34.25, or 1.2 per cent, to 2,762.67.

Investors are also keeping a close watch on developments in Europe amid worries Italy and Spain would be dragged into the debt crisis that has already seen Greece, Ireland and Portugal bailed out.

Oil prices fell to near $95 a barrel after Bernanke's comments.

Benchmark oil for August delivery was down 22 cents to $95.47 a barrel in electronic trading on the New York Mercantile Exchange. Crude fell $2.36 to settle at $95.69 on Thursday.

In currencies, the dollar rose 0.1 per cent to 79.20 yen. The euro fell 0.2 per cent to $1.4122.