US economic data heightens recession fears

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New data on the US economy, including a huge drop in a regional manufacturing survey, has heightened market fears of a new recession.

The closely-watched guide to manufacturing activity in the mid-Atlantic states slumped to its lowest level since March 2009.

Meanwhile, sales in the heavily depressed US housing market fell unexpectedly, despite mortgage rates hitting their lowest level in 50 years.

Unemployment claims also rose sharply.

The number of people claiming unemployment benefit ticked up by 9,000 last week, to a seasonally adjusted 408,000, according to the Department of Labor.

The Federal Reserve Bank of Philadelphia's manufacturing activity index provided the biggest scare.

It slumped to -30.7 points in August from +8.2 points in July. Any figure below zero indicates a contraction in the regional manufacturing sector.

It is now at its lowest level since March 2009, and Grant Lewis, head of economic research at Daiwa Capital Markets in London, said the Philadelphia index was now "at levels that point towards recession territory".

The Philadelphia index is the first of the US regional manufacturing surveys to be released and is seen as a leading indicator of the economy.

Meanwhile, the US housing market continued to disappoint.

Sales of existing homes in the US during July fell 3.5% from a month earlier, according to the National Association of Realtors.

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[The market sell-off will] revive fears that the down elevator for shares may not end its descent for some time yet.”

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The stock of unsold houses rose to the equivalent of 9.4 months worth of supply, which analysts say is likely to put further downward pressure on house prices.

There was some good news for the housing market, with average interest rates on 30-year mortgages falling to a record low of 4.15% over the past week, according to the US government home loans agency Freddie Mac.

Nonetheless, the string of bad economic data contributed to a slump in global stock markets on Wednesday.

Mr Lewis of Daiwa added that markets were now looking to Federal Reserve chairman Ben Bernanke's speech next week at the US central bank's annual meeting in Jackson Hole, Wyoming, for signs of the bank agreeing to additional quantitative easing (QE).

Under QE, central banks pump new money into the financial system to try to boost the economy.

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