World stocks sink on Japan, China recovery doubts

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Pedestrians look at an electronic stock indicator showing Japan's Nikkei 225 shed 398.22 points, or 2.7 percent, to 14,088.19 in Tokyo Friday, Oct. 25, 2013. Asian stock markets were dragged down Friday by doubts about the durability of recoveries in China and Japan, the region's two biggest economies. (AP Photo/Shizuo Kambayashi)

KUALA LUMPUR, Malaysia (AP) — World stock markets were dragged down Friday by doubts about the durability of recoveries in Asia's two biggest economies. Tokyo's benchmark dived 2.8 percent.

Japan released inflation figures that gave a mixed signal about the effectiveness of Prime Minister Shinzo Abe's economic revitalization strategy that aims to reverse two decades of stagnation and falling prices.

The consumer price index rose for a fourth straight month in September but much of the increase was due to higher costs for imported food and energy as monetary easing has weakened the Japanese yen.

Investors are watching for signs of whether the "Abenomics" strategy can really fuel a lasting recovery from years of torpor, said Stan Shamu, market strategist with IG in Melbourne, Australia.

"There is continuing concern that Abenomics isn't working. Japan is the main source of volatility, and is driving weakness in the markets," he said.

On top of that, the Chinese central bank's refusal to inject funds into money markets this week to curb frothy credit growth has sparked fears of a liquidity crunch, with bank-to-bank lending rates inching higher. That has dimmed the optimism that stemmed from a rebound in China's third quarter economic growth and an improvement in manufacturing for September.

Markets were muted in Europe. Britain's FTSE 100 fell 0.1 percent to 6,705.2 and Germany's DAX shed 0.2 percent to 8,966.32. France's CAC-40 lost 0.5 percent to 4,256.39.

Futures augured weakness on Wall Street. Dow futures fell 0.1 percent and broader Standard & Poor's 500 futures were down 0.2 percent.

In Asia, Japan's Nikkei 225 shed 2.8 percent to 14,088.19 and Seoul's Kospi slipped 0.6 percent to 2,034.39.

Hong Kong's Hang Seng fell 0.6 percent to 22,698.34 and China's Shanghai Composite Index was off 1.5 percent at 2,132.96.

Benchmarks in Taiwan, Jakarta, Malaysia and Singapore were also weaker.

In energy trading, benchmark U.S. crude for December delivery was up 8 cents at $97.18 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 25 cents to $97.11 on Thursday.

The euro rose to $1.3816 from $1.3797 late Thursday. The dollar dropped to 97.07 yen from 97.38 yen.