A surprisingly weak U.S. payrolls survey weighed on stock markets Wednesday as investors gear up for the government's official jobs report at the end of the week. The euro, meanwhile, remained near three-week highs against the dollar on hopes Greece will get more help with its debts.
At the start of each month, investors have a slew of U.S. economic indicators to digest, in particular the monthly nonfarm payrolls data, which often set the tone in markets for a week or two after their release.
Investor sentiment was jolted by Wednesday's news from the ADP payrolls firm that private employers only added 38,000 jobs during the month. That was far lower than the 175,000 expected in the markets.
The figures reinforced fears that the U.S. economic recovery is quickly running out of steam and that Friday's official government data may come in lower than anticipated. Before the ADP figures, the consensus in the markets was that Friday's government data will show that around 200,000 jobs were added during May, slightly down on April's 244,000 increase.
"This is a very weak result, and puts substantial downside risk to Friday's nonfarm figure," said Jennifer Lee, an economist at BMO Capital Markets.
Concerns over the U.S. economy have combined with Europe's debt crisis, particularly whether Greece will get more emergency loans, to weigh on stock markets in recent weeks.
Further clues about the U.S. recovery will come later when the Institute for Supply Management publishes its May survey into the manufacturing survey. The release is considered a top-tier gauge of economic activity in the U.S. The consensus in the markets is that the ISM's main index will drop to around 57 from the previous month's 60.4
Following the weak ADP report, Wall Street futures turned sharply lower, pushing stocks in Europe down, too.
In Europe, the FTSE 100 index of leading British shares was down 0.4 percent at 5,964 while Germany's DAX fell 0.5 percent to 7,256. The CAC-40 in France was 0.3 percent lower at 3,993.
Wall Street was poised for similar losses at the open _ Dow futures were down 0.4 percent at 12,512 while the broader Standard & Poor's 500 futures fell 0.4 percent to 1,338.
The ADP figures also had an impact in the currency markets, pushing the dollar down, particularly against the yen. By mid-afternoon London time, the dollar was 0.6 percent lower at 80.55 yen.
The dollar was faring a little better against the euro, trading flat at $1.4431.
The euro has enjoyed a strong run over the past few trading sessions on expectations that Greece will get more help from its partners in the eurozone and the International Monetary Fund to meet financing commitments through to 2013. Alongside a second rescue package following last year's euro110 billion package of loans, Greece is expected to have to increase its privatization program and make more austerity cuts.
Few analysts, however, think that a second rescue package would necessarily prevent a Greek debt restructuring down the line given weak economic growth forecasts and political infighting.
"We remain sceptical that the modest rebound in risk sentiment over the past week will prove sustainable beyond the near-term especially any renewed optimism regarding Greece where a rehash of previously unsuccessful support steps will likely fail again," said Lee Hardman, a currency strategist at the Bank of Tokyo-Mitsubishi UFJ.
Earlier in Asia, Japan's Nikkei 225 rose 0.3 percent to close at 9,719.61 after Bank of Japan Governor Masaaki Shirakawa said in a speech that supply and electricity disruptions caused by the March 11 earthquake and tsunami were easing. The economy could stage a moderate recovery starting in the second half of fiscal 2011, he said.
Elsewhere, South Korea's Kospi index slipped less than 0.1 percent to 2,141.34 after the government announced the country's inflation rate eased for a second straight month in May, to 4.1 percent.
Hong Kong's Hang Seng index drifted 0.2 percent lower to 23,626.43 while mainland China's Shanghai Composite Index dropped 0.3 percent after data showed China's manufacturing sector easing in April. The state-affiliated China Federation of Logistics and Purchasing reported that its purchasing managers index, or PMI, fell to 52.9 in April, down from 53.4 in March.
Australia's S&P/ASX 200 failed to hold onto gains and closed flat at 4,707.30.
In the oil markets, the price of crude continued to hover around the $100 a barrel mark. Benchmark oil for July delivery was down 1 cent to $102.69 a barrel in electronic trading on the New York Mercantile Exchange after a $2 plus gain on Tuesday.
Pamela Sampson in Bangkok contributed to this report.