By Simon Jessop
LONDON (Reuters) - Global shares fell and the dollar hit a two-month high on Thursday on investor concern about another economic hit from the coronavirus pandemic, ahead of key U.S. jobless data and comments from the head of the Federal Reserve.
After a summer lull in much of Europe, the infection rate has begun to rise sharply, with a number of countries including Britain introducing tougher rules to help limit the spread of the virus.
Fears that a market rebound in recent months had gone too far held stocks back, although positive German and French business sentiment data helped pare European losses slightly as did U.S. stock futures pointing to a flat open.
The MSCI World (MIWD00000PUS) index was down 0.5% at 1018 GMT, its fifth day in the red out of the last six and hovering near a two-month low. A broad gauge of Europe's top shares, the STOXX Europe 600 (STOXX), was down 0.4%.
S&P 500 futures (ESc1) were flat nearing midday, holding steady after falls in the prior session after economic warnings from U.S. Federal Reserve officials.
That had, in turn, helped tee up weakness overnight in Asia with Asia Pacific shares outside Japan (MIAPJ0000PUS) down 1.99% to chalk up their worst day in two months.
"Optimism on the recovery, optimism on the virus, and bets on stimulus were keeping markets well bid, and on all three of these issues, there has been a degree of disappointment this month," said John Velis, an FX and macro strategist at BNY Mellon.
High-grade euro zone government bond yields fell across the board on an expectation that stimulus measures would be maintained, with the German 10-year down 2.2 basis points. The U.S. 10-year was dowm 0.5 basis points.
Despite markets betting on more U.S. fiscal stimulus, political stalemate in Washington continues to frustrate efforts to prop up the world's biggest economy, beset by one of the worst COVID-19 death rates globally.
"A U.S. fiscal deal was baked into markets and now what you are seeing is that the probability of a deal going through has simply reversed," said Justin Onuekwusi, a London-based portfolio manager at Legal and General Investment Management.
"We have heard this week how important a fiscal deal is to the Federal Reserve but from a political standpoint, focus has moved more towards the election and Supreme Court deliberations rather than the economy," he added.
Flows into the dollar (=USD) helped it rise for a fourth straight day. Although gains had been pared slightly from the open, it remains on track to record its longest streak of daily gains since June.
The slight perk-up in sentiment helped Brent crude futures (LCOc1) recover early losses to trade flat at $41.80 a barrel although gold
The euro (EUR=) was flat at $1.1658.
With central bankers in focus globally, U.S. Federal Reserve Chair Jerome Powell will be closely watched later in the day when he testifies before the Senate Banking Committee, while other Fed officials are scheduled to speak at other events during the day.
Investors are also waiting for weekly data due later on Thursday, which is expected to show U.S. jobless claims fell slightly but remained elevated, indicating the world's largest economy is far from recovering.
A similar picture was visible in Europe, where the European Central Bank's latest Economic Bulletin said unemployment would continue to rise in the euro zone, with little growth in demand seen for consumer goods.
Elsewhere among regional ratesetters, the Swiss National Bank maintained its easy monetary policy, but turned less gloomy on the impact of the pandemic. In Britain, meanwhile, the finance minister launched a new jobs support scheme.
In emerging markets, Turkey surprised markets with a hike in its policy rate by 200 basis points to 10.25%, sending the lira and bonds higher. Mexico is also set to decide on monetary policy later on Thursday.
MSCI's Emerging Markets Index (MSCIEF) was down 1.8%.
Graphic: COVID-19 new daily cases https://fingfx.thomsonreuters.com/gfx/mkt/gjnvwjjbbpw/Pasted%20image%201600941249476.png