LONDON (AP) — Global financial markets fell Tuesday amid uncertainty over what authorities in the U.S., China and Europe might do to help the slowing world economy.
In Europe, the focus will be on the European Central Bank President Mario Draghi Thursday, who is expected to announce details of a new bond-buying program intended to bring down the borrowing costs of countries such as Spain and Italy.
The plan is a crucial step to easing the crisis, which is increasingly hurting the continent's economy.
Moody's ratings agency on Monday warned that it could downgrade the credit score for the European Union as a whole, citing the mounting financial strain of the crisis on key countries like Germany and France. These countries are not only exposed to the higher costs of rescuing weaker countries but their industries are also suffering from weakening demand.
Britain's FTSE 100 closed down 1.5 percent at 5,672.01 while Germany's DAX lost 1.2 percent to 6,932.58. France's CAC 40 dropped 1.6 percent to 3,399.04.
Wall Street fell after the three-day Labor Day weekend. The Dow Jones industrial average dropped 0.8 percent to 12,993.17 while the S&P 500 shed 0.6 percent to 1,398.42. Earlier, Asian indexes closed lower.
Markets dropped further after a key survey showed the manufacturing sector continues to contract. The ISM manufacturing index fell in August, confounding expectations for an increase.
"This indicates that the continued uncertainty caused by the recession in Europe, the slowdown in Asia and the fiscal cliff at home is taking its toll on activity," said Paul Dales, senior U.S. economist at Capital Economics.
The week will culminate in Friday's U.S. nonfarm payrolls figures, a key indicator of the health of the world's biggest economy.
Overall, U.S. economic data appears weak enough to warrant more stimulus for the economy — Federal Reserve chairman Ben Bernanke has indicated that the central bank is inclined to do so sooner rather than later.
Spooking investors in Asia were signs that China's central bank is resisting calls for more aggressive measures to boost the economy based on past experience: the huge stimulus enacted in response to the 2008 global crisis fueled inflation and a wasteful spending boom.
Earlier, Japan's Nikkei 225 index fell 0.1 percent to close at 8,775.51. Hong Kong's Hang Seng lost 0.7 percent to 19,429.91 and South Korea's Kospi shed 0.3 percent to 1,907.13. Australia's S&P/ASX 200 fell 0.6 percent to 4,303.50.
Mainland China's Shanghai Composite Index lost 0.8 percent to 2,043.65 while the smaller Shenzhen Composite Index lost 0.9 percent at 846.88.
In commodities markets, the benchmark oil contract for October delivery was down $1.22 to $95.25 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.85 to finish at $96.47 Friday.
In currencies, the euro edged down to $1.2563 from $1.2575 a day earlier, while the dollar was steady at 78.38 yen.
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Pamela Sampson in Bangkok contributed to this report.