NEW YORK (Reuters) - The dollar and global stock markets fell on Monday after U.S. President Donald Trump said he would restore tariffs on some imports from Brazil and Argentina, while a drop in new U.S. factory orders in November to their lowest since 2012 deepened the decline.
European shares posted their biggest daily drop in two months as the threat of tariffs overshadowed data that showed the Chinese and euro zone economies were stabilizing.
Investors worried it would only be a matter of time before Trump targets Europe again. MSCI's gauge of global stock markets had approached a record high last week on expectations Beijing and Washington will hammer out a "phase one" trade deal this year.
The dollar posted its biggest slide against the euro since mid-September as the weak U.S. manufacturing data and an unexpected drop in U.S. construction spending in October rekindled worries about a slowing economy.
Data from the Institute for Supply Management (ISM) showed the U.S. manufacturing sector contracted for a fourth straight month in November as new orders slid.
A World Trade Organization ruling that the European Union continues to provide unfair subsidies to European planemaker Airbus <AIR.PA>, which supports the U.S. case for retaliatory tariffs, also weighed on European equities.
For a graphic on MSCI world stocks index:
https://fingfx.thomsonreuters.com/gfx/mkt/12/9373/9285/world%20stocks.png
Germany's export-sensitive DAX <.GDAXI> stock index tumbled 2.1%, its worst single-day decline since early October, when the WTO approved U.S. moves to slap import tariffs on $7.5 billion worth of European goods.
MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 0.43%, while the pan-European STOXX 600 index <.STOXX> lost 1.58%. Wall Street also fell, but not has hard.
Trump's tweets triggered selling that accelerated on last month's below-expectations U.S. manufacturing activity, said Fawad Razaqzada, market analyst at Forex.com in London.
"It's a number of reasons coming in all at the same time," Razaqzada said. "But with the stock markets at record high levels, this is always going to happen. Markets go up in stairs and then on the way down, it's an elevator."
The major U.S. indexes last week hit record highs while MSCI's index of equity markets in 49 countries rose to one point below an all-time high established in January 2018.
The Dow Jones Industrial Average <.DJI> fell 189.89 points, or 0.68%, to 27,861.52, the S&P 500 <.SPX> lost 18.53 points, or 0.59%, to 3,122.45 and the Nasdaq Composite <.IXIC> dropped 81.27 points, or 0.94%, to 8,584.20.
ISM said its index of U.S. factory activity dropped 0.2 point to a reading of 48.1 in November. A reading below 50 indicates contraction in factory output, which accounts for 11% of the U.S. economy. The index needs to break below 42.9 to signal a recession.
For a graphic on global assets in 2019:
http://fingfx.thomsonreuters.com/gfx/rngs/COMMODITIES-ASSETS/010031B62XZ/index.html
The dollar dropped from six-month highs against the Japanese yen and slid to a two-week trough versus the euro after the U.S. manufacturing report.
The dollar index <.DXY> fell 0.4%, with the euro <EUR=> up 0.54% to $1.1074. The yen <JPY=> strengthened 0.55% versus the greenback at 108.98 per dollar.
The rally in equities has been predicated on economic recovery and Monday's data belied that trend, said Jack Ablin, chief investment officer at Cresset Capital Management in Chicago.
Holiday sales, however, may provide the market upside.
"There's going to be plenty of good news to go around," Ablin said. "We could get some really solid news to carry this market at least for the next week or so," he said.
A Commerce Department report that showed U.S. construction spending unexpectedly fell in October as investment in private projects tumbled to its lowest level in three years also weighed on markets.
Benchmark 10-year U.S. Treasury notes <US10YT=RR> fell 17/32 in price to yields up to 1.8345%.
For a graphic on world FX rates in 2019:
http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html
Oil jumped above $61 a barrel, supported by hints that the Organization of the Petroleum Exporting Countries and its allies may agree to deepen output cuts at a meeting this week and as rising Chinese manufacturing activity suggested stronger demand.
U.S. crude <CLcv1> gained 79 cents to settle at $55.96 a barrel and Brent <LCOcv1> gained 43 cents to settle at $60.92.
Germany's borrowing costs rose after the Social Democrats (SPD) chose new leaders critical of their own ruling coalition, with yields on benchmark 10-year debt set for the biggest one-day spike in nearly three months.
Benchmark German bond yields jumped across the board, with 10-year yields <DE10YT=RR> up more than 7 basis points to -0.273%, their highest in nearly three weeks.
U.S. gold futures <GCv1> settled 0.2% lower at $1,469.20.
For a graphic on MSCI All Country Wolrd Index Market Cap:
http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-MARKETS/010060TL1KC/index.html
(Reporting by Herbert Lash; Editing by Dan Grebler and Nick Zieminski)
