LONDON (Reuters) – World stocks fell on Friday, keeping safe-haven government debt well-bid on investor worries that U.S. policymakers are not taking urgent steps to stop the world's biggest economy from tipping back into recession.

The euro sank to a near six-month low against the dollar after the region's festering debt crisis forced the European Central Bank on Thursday to shift away from further rises in interest rates, a key driver in the single currency's rally this year.

European stocks snapped a two-day recovery after U.S. Federal Reserve Chairman Ben Bernanke left the door open for new stimulus measures but stopped short of signaling the central bank would take the plunge.

Equity markets were also concerned that President Barack Obama's proposed $447 billion package of tax cuts and spending plans aimed at boosting growth and job creation could be hamstrung by political wrangling when it goes to Congress.

"Investors are holding back…There isn't any reason to commit until you can see credible policies," Justin Urquhart Stewart, director at Seven Investment Management, said.

"Bernanke was never going to say anything. He made it clear at Jackson Hole he was pushing it back to the politicians. Obama has come up with this stimulus package. We now have to digest what effect this will have, assuming it is passed."

European shares fell 1.1 percent, pulling down the MSCI world equity index 0.7 percent.

S&P futures were down 0.3 percent, indicating a lower open on Wall Street later in the day.

Market confidence has been fragile this week due to growing concerns over the global economy and Europe's debt crisis, with Friday's deadline for bond holders to decide on Greece's swap offer adding to the nervousness.

G7 EXPECTATIONS

Investor focus was now on G7 finance ministers and central bankers meeting later on Friday when the faltering global recovery and Europe's problems are likely to be the main issues of the day.

Host France has called for co-ordinated action to boost growth, but the divergent economic problems facing the United States, Britain and the euro zone are complicating the task.

"There is some expectation doing the rounds that the G-7 meeting will produce a key coordinated policy response. We have our doubts," Lloyds strategists said in a note.

"In this environment, while acknowledging scope for bouts of near-term risk-asset buoyancy, we continue to anticipate money flowing into higher-grade fixed-income product into yield back- ups."

Safe-haven German government bond prices surged, with Bund futures jumping almost one full point to a record high of 137.44 and benchmark U.S. T-note yields hovering within striking distance of 1.908 percent, its lowest in 60 years hit on Tuesday.

The euro was last down 0.4 percent against the dollar at $1.3832, its lowest in nearly six months with traders saying selling in the single currency accelerated when stop-loss orders were triggered below $1.3840.

Analysts saw more downside as sentiment stays negative after the ECB dropped its tightening bias and investors believe a lasting solution to euro zone debt crisis remains elusive.

"The ECB has now left the door open for an easing of policy and there are more downside risks to come for the euro with Greek PSI (private sector involvement) to be finalized and ratification of the EFSF still required." said Kiran Kowshik, currency strategist at BNP Paribas.

Gold, propelled to a series of records in recent months due to its appeal as both a safe haven and hedge against inflation, was up 0.6 percent at $1,878 an ounce, after jumping 3 percent in the previous session.

Oil, which had dipped on Thursday as the dollar rose, making it more expensive for holders of other currencies, was a touch lower, with U.S. crude futures trading 0.6 percent down around $88 a barrel and Brent crude at $114.59.

(Additional reporting by Brian Gorman and Neal Armstrong; editing by Stephen Nisbet)

NEW YORK – The Dow Jones industrial average is sinking after a key manufacturing index dropped sharply in July.

The Dow is down 58 points, or 0.5 percent, to 12,085 shortly after the manufacturing report came out at midmorning. It had been up as much as 139 points.

The Institute of Supply Management said its manufacturing index fell to 50.9. That was barely above the 50 point figure that indicates growth. Economists had been expecting a much higher reading of 55.

The Dow rallied in early trading Monday after President Barack Obama and Congressional leaders announced that they had reached a deal to raise the nation’s borrowing limit ahead of a Tuesday deadline. The deal must still get passed in Congress.

NEW YORK (Reuters) – Earnings could make for a bumpy ride in U.S. stocks next week if more key companies undershoot expectations, possibly causing a spike in volatility.

Disappointments from Alcoa (AA.N) , Google (GOOG.O) and others in the first week of earnings have dampened some of the enthusiasm about results, ensuring that eyes will be glued to reports in the coming days.

These include top technology and financial company results, including Yahoo (YHOO.O), Intel (INTC.O), IBM (IBM.N), Texas Instruments (TXN.N), Goldman Sachs (GS.N) and Citigroup (C.N). This blitz of numbers will come during a holiday-shortened week. U.S. financial markets will be closed on April 22nd in observance of Good Friday.

Market watchers also will be anxious to hear how much tech companies may have been affected by the disaster in Japan.

“We’ve all been lulled to sleep here lately. This earnings season will hopefully be a telling point to try to give people conviction to go one way or the other,” said Mike Gibbs, managing director and chief market strategist at Morgan Keegan in Memphis.

“There are potential land mines out there that could create a little bit more volatile trading,” he said.

The CBOE Volatility Index, a barometer of investor anxiety known as the VIX (.VIX), briefly fell on Friday to its lowest level since July 2007. It ended at 15.32, well below its mid-March high of 31.28.

Others agreed that further disappointments could stir up volatility.

“If earnings disappoint greatly from any of the major players next week in the financials or technical sector, this could be a catalyst for a return of volatility into the market,” said Joe Kinahan, TD Ameritrade chief derivatives strategist, in Chicago.

For the week, the Dow Jones industrial average (.DJI) slipped 0.3 percent, while the Standard & Poor’s 500 Index (.SPX) and the Nasdaq Composite Index (.IXIC) each shed 0.6 percent.

BEWARE OF “DUAL HEADWINDS”

Whether the earnings season will be strong enough to propel the market higher is the question on investors’ minds.

The Standard & Poor’s 500 index (.SPX) is up 25.8 percent since the start of September, roughly when the recent rally began.

But sharp gains in the price of oil and other commodities, especially in the first quarter, have fueled worries about the impact on consumers and companies. Moreover, Japan’s massive earthquake and tsunami, which triggered a nuclear crisis, have prompted other concerns.

Equity strategists at JPMorgan Chase cut their U.S. earnings estimates by $1 — but for second-quarter and full-year results — because of these “dual headwinds.”

One popular view is that the market stays in sideways motion during earnings season.

“Earnings are just going to be enough to keep this market bipolar,” said Mark Lamkin, CEO and chief investment strategist of Louisville,Kentucky-based Lamkin Wealth Management, with more than $200 million in assets under management.

They “are going to be good enough to keep this market toward the high end of this trading range, but they’re not going to be good enough to break out of a range and set the next big leg higher.”

FINANCIALS’ FORECAST REVISED DOWN

In aggregate, analysts’ mean earnings forecast for the S&P financial sector for the first quarter is down 3.4 percent in the past 14 days, according to Thomson Reuters StarMine data.

It was the biggest negative change for any S&P 500 sector, while energy has seen the biggest positive change, the data showed.

The mean change in earnings estimates for Goldman Sachs (GS.N) is down 42.8 percent in the last two weeks, while the mean change in estimates for Citigroup Inc (C.N) is down 6 percent in the last 14 days, it showed.

Analysts’ mean earnings forecast for the S&P information technology sector is down 0.1 percent in the past 14 days.

Among other tech disappointments, Infosys Technologies Ltd (INFY.O), India’s No. 2 software services exporter, on Friday forecast annual sales lower than expected.

BEARS CIRCLE THE OIL PATCH

Among others expected to report next week are several oil services companies.

Data suggests those stocks could be vulnerable to more declines as earnings expectations have come down and bearish options bets have increased lately, according to Reuters Insider quantitative analyst Mike Tarsala. Deepwater projects in the Gulf of Mexico are being approved at a slow pace.

Earnings sentiment for the group is waning, he said. Two of the sector’s biggest names, Halliburton Co. (HAL.N) and Schlumberger Ltd. (SLB.N) are due to report next week.

To be sure, many analysts still see many upside surprises ahead in this earnings reporting period, repeating the trend of recent earnings seasons.

“What’s happened is the global macro noise has overshadowed the fundamental earnings stories … beneath the covers, things are actually better than people believe,” said Mike Jackson, founder of Denver-based investment firm T3 Equity Labs.

Based on his own research model, he ranks industrials (.GSPI) at the top of his earnings expectations among the S&P 500′s 10 sectors, followed by telecommunications.

Thomson Reuters data shows S&P 500 earnings are expected to have risen 11.7 percent from a year earlier. That estimate is roughly unchanged in recent weeks.

(Reporting by Caroline Valetkevitch in New York, with additional reporting by Doris Frankel in Chicago; Editing by Jan Paschal)

BEIJING – World markets slid Wednesday as a shock drop in U.S. housing sales and slowing growth in Japanese exports added to evidence of a waning global recovery.

Global markets have spent most of August in the red as economic indicators from the U.S., Japan, China and elsewhere suggested global growth will slow in the second half, dimming earnings prospects for manufacturers and other exporters. Oil prices hovered under $72 a barrel after tumbling the day before.

“The dismal July sales data on previously occupied U.S. homes spooked investors around the region. It has a direct psychological impact,” said Huang Xiangbin, an analyst for Cinda Securities in Beijing.

Japan’s Nikkei 225 stock average dropped 149.75 points, or 1.7 percent, to a 16-month low of 8,845.39 after the yen hit a fresh 15-year-high against the dollar overnight, adding further pain for the country’s exporters.

In a bid to curb the yen’s rise, Finance Minister Yoshihiko Noda told reporters Wednesday that Japan will “respond appropriately when necessary.” Japan has not intervened in the foreign exchange market since March 2004. Sentiment in Tokyo also took a hit from news that Japan’s export growth slowed for the fifth consecutive month in July.

In Europe, the FTSE 100 index of leading British shares lost 9.66 points, or 0.2 percent, to 5,146.29. Germany’s DAX fell 10.4, or 0.2 percent, to 5,925.21 and the CAC-40 in France declined 9.13, or 0.3 percent, to 3,481.99. Wall Street, however, was set to rise modestly with Dow futures up 15, or 0.2 percent, at 10, 038.00.

Most other markets were also in the red. China’s benchmark Shanghai Composite Index fell 53.73, or 2 percent, to close at 2,596.58. Hong Kong’s Hang Seng dropped 23.73, or 0.1 percent, to 20,634.98.

South Korea’s Kopsi shed 1.5 percent to 1,734.79 and Australia’s S&P/ASX 200 lost 1.4 percent to 4,320.10. Benchmarks in India, Taiwan and Indonesia also retreated.

In New York on Tuesday, the Dow Jones industrial average dropped 133.96 points, or 1.3 percent, to 10,040.45. July sales of previously occupied U.S. homes plunged more than expected to the lowest level in 15 years, according to the National Association of Realtors.

The Standard & Poor’s 500 index fell 15.49, or 1.5 percent, to 1,051.87, while the Nasdaq composite index fell 35.87, or 1.7 percent, to 2,123.76.

In currencies, the dollar rose to 84.60 yen in Asia after trading as low as 83.61 yen in New York on Tuesday. The euro fell to $1.2674 from $1.2653.

Benchmark crude for October delivery was up 32 cents at $71.95 in electronic trading on the New York Mercantile Exchange. The contract fell $1.47 to settle at $71.63 on Tuesday.

NEW YORK – With earnings season in full swing, bulls and bears are combing through reports to arm themselves in what’s become the mother of all stock market debates: Does the recovery gain steam, sending shares aloft? Or does it remain sluggish, or even stall, and push them down further?

A third possibility: Maybe the economy doesn’t matter so much.

Larry Hatheway, an economist at UBS, says economic growth means companies selling more things. But he thinks that is not as important as it used to be to generating the profits needed to send stocks higher. That’s because U.S. firms have mastered the art of pulling more and more money from each dollar of sales.

One gauge of that success: Corporate margins, or profits per sale, are hovering near 12 percent now, by one measure — tantalizingly close to a half-century high.

“As long as we don’t fall into another recession, it’s a good time to make money,” says Hatheway, who’s bullish on stocks. “We’re able to squeeze more profits out of sales than we were twenty or thirty years ago.”

Though just a third of companies in the Standard & Poor’s 500 have reported quarterly earnings results so far, the picture is impressive. Profits are booming. Eight out of ten companies have beat earnings expectations, according to Thomson Reuters. The average jump in profits is 33 percent.

It’s an old story, really. Companies cut workers in a downturn, and squeeze more out of those remaining. And so profitability rises smartly — only to fall again in the recovery as sales and payrolls rise once more.

But Hatheway says margins will stay high for a while yet because the forces that pushed them there aren’t going away anytime soon.

He says high unemployment is likely to stick around longer than in typical recoveries. And while that’s bad for the economy, it’s good for margins. “Firms can pick good employees and dictate compensation,” he says.

U.S. companies also have learned to squeeze more from their equipment and factories, not just their workers, he says. They kept their spending on such things low even before the recession. They feared a repeat of the booming 1990s when they spent wildly on equipment like telecommunications gear — only to discover they didn’t need all of it.

Hatheway says globalization has helped, too. Companies outsource much work abroad and draw supplies from numerous sources now as trade has boomed, which helps keep costs down. Growth abroad has boosted exports, too. That makes the fate of U.S. profits, and margins, less tied to U.S. growth.

The result: Though profit margins will rise and fall as they always have done, the highs and the lows are higher, Hatheway says. He defines margins as total U.S. corporate profit divided by the country’s gross domestic product.

“I see lows now of maybe 9 percent,” he says, a point or two higher than margins during most of the 70s and 80s. He adds that falling margins are “far in the future” — perhaps four years away.

Not everyone is convinced.

Legendary investor Jeremy Grantham, the Boston money manager who called the housing bust years ago, has been telling investors for months now that profit margins will fall from their perch, sending stocks tumbling. Andrew Smithers of London researcher Smithers & Co. wrote a report warning of the same. John Hussman of the Hussman Funds wrote this month that investors buying stocks on the belief that fat margins will last are destined to “walk themselves over a cliff.”

“The dark side of margins is that they’re going to have to come down,” says Claus Vistesen, an economist at the University of Hull in England. He adds, ominously, “And the market hasn’t fully priced this.”

Hatheway, for his part, isn’t backing down.

“If you give me slow growth and high unemployment, I can give you high earnings,” he says. “The stock market is not the economy.”