Stocks muted as US manufacturing, Spain weighed

BANGKOK -- World stock markets lost momentum Tuesday as investors weighed an improvement in U.S. manufacturing against the possibility Spain's government debt will be downgraded to junk status.

Asian markets got a boost earlier in the day after a report showed U.S. manufacturing grew in September for the first time in four months. But the euphoria faded by the time European markets opened.

Britain's FTSE 100 fell 0.3 percent to 5,806.11. Germany's DAX lost 0.1 percent to 7,320.24. France's CAC-40 shed 0.4 percent to 3,423.01.

U.S. stocks were poised for a higher opening, however. Dow Jones futures rose 0.3 percent to 13,470 and S&P 500 futures gained 0.4 percent to 1,442.

In Asia, Japan's Nikkei 225 index shed morning gains to close 0.1 percent lower at 8,786.05. South Korea's Kospi was nearly unchanged at 1,996.03.

Australia's S&P/ASX 200 gained 1 percent to 4,433. Stocks there were buoyed by the central bank's decision to cut its benchmark interest rate by a quarter percentage point as a slowdown in China's economy and persistent weakness in Europe adds to uncertainty about Australia's economic outlook.

Benchmarks in Singapore, Taiwan and Malaysia also rose. Markets in Hong Kong, mainland China, and India were closed for public holidays.

Some investors were emboldened to weigh into stocks after the Institute for Supply Management said Monday its index of U.S. factory activity rose sharply to above 50, a reading that signals growth. The index had been below 50 from June through August.

The increase is a hopeful sign that the economy may be improving after a weak stretch. Economists welcomed the increase, though most still forecast slow economic growth below 2 percent for the rest of this year.

The data "will boost hopes that some of the recent slowdown in economic growth was just a summer phenomenon," Paul Dales of Capital Economics said in a research note.

Still, the investment mood was dampened by credit rating agency Moody's, which might downgrade Spain's debt to junk status this week.

That would hurt Spanish markets because many pension funds and banks would have to sell them from their portfolios and desist from buying them at auction. That, in turn, would force Spain to pay higher rates to borrow money, further hurting its government finances and possibly escalating Europe's chronic debt crisis.

Benchmark oil for November delivery was up 35 cents to $92.83 per barrel in electronic trading on the New York Mercantile Exchange. The contract closed up 29 cents at $92.48 in New York on Monday.

In currencies, the euro rose to $1.2910 from $1.2886 in New York late Monday. The dollar rose to 78.09 yen from 78.02 yen.