China drop, growth worries sink stocks; dollar fades

By Chuck Mikolajczak NEW YORK (Reuters) - World stock markets fell and Brent oil prices remained under pressure on Thursday as another slump in the equity market of China, the No. 2 economy, stoked concerns about sluggish global growth. Wall Street was also weighed down by a drop in finance stocks and was poised for a third day of declines as expectations cooled for a U.S. interest rate hike in September, which also kept the dollar lower. The declines in equities put both the Dow and S&P 500 into negative territory for the year. Stocks in China tumbled again, with both the Shanghai and Shenzhen markets <.SSEC> <.CSI300> down more than 3 percent. Investors have been concerned a weak currency and slowing economy may spur further capital outflows. "The narrative is still being shaped by two things primarily – one is the ongoing fallout from both by the apparent softening of growth in China, the volatility within the Chinese equity markets and also the concerns that China could be at the beginning of a broader devaluation of the currency," said Mike Ryan, chief investment strategist at UBS Wealth Management Americas in New York. "The other part, quite frankly is related to the Fed." FINANCIALS HIT Financials <.SPSY> were the among worst performing of the 10 major S&P sectors, down 1.5 percent. The drop comes in the wake of minutes released Wednesday from the Federal Reserve's July meeting, which cooled expectations the Fed will start to raise interest rates as early as September, the first such move in nearly a decade. The Dow Jones industrial average <.DJI> fell 220.24 points, or 1.27 percent, to 17,128.49, the S&P 500 <.SPX> lost 26.07 points, or 1.25 percent, to 2,053.54 and the Nasdaq Composite <.IXIC> dropped 99.07 points, or 1.97 percent, to 4,919.98. MSCI's all-country world stock index <.MIWD00000PUS> lost 1.2 percent after touching a 6-month low. The Fed minutes showed officials in broad agreement that the U.S. economy was nearing the point where interest rates should move higher. It also noted lagging inflation and that a weak global economy posed too big a risk to commit to a rate "liftoff." BROAD DECLINES The FTSEuroFirst index of 300 leading European shares fell 1.9 percent <.FTEU3> and Germany's DAX fell 2.1 percent <.GDAXI> to its lowest close since January. That put the DAX down about 7.8 percent so far this month, its worst month in four years. In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> shed 1.5 percent to a two-year low, marking a fifth consecutive day of losses in what is its longest losing streak this year. Japan's Nikkei <.N225> fell 0.9 percent. Benchmark 10-year notes were last up 11/32 in price to yield 2.0906 percent from 2.50 percent in mid-June. The dollar <.DXY> shed 0.34 percent to 96.028 against a basket of major currencies amid the diminished rate hike expectations, touching a 1-month low of 95.859. U.S. crude oil managing to bounce off its support level near $40 a barrel and from a 6-1/2 year low of $40.21 as the first hurricane of the 2015 Atlantic season sparked some concern. The contract was last up 1.1 percent at $41.26, while Brent crude was down 0.2 percent at $47.09. MSCI's emerging market index <.MSCIEF> set a near four-year low, having fallen 22 percent from this year's high hit in April. (Editing by Bernadette Baum)