US stocks retreated on Monday as inflation data dampened sentiment on the eve of the Federal Reserve’s policy meeting. A decline in commodity prices weakened resource plays, while news of a steep decline in profit at HSBC saw investors shun financials.

On a year-over-year basis, prices rose 4.1 per cent in June, up from 3.5 per cent in May, the largest annual gain since May 1991.

The Commerce Department also reported that personal incomes edged up 0.1 per cent after rising 1.8 per cent in May. June's rise was the smallest since April 2007.

Personal spending increased by 0.6 per cent, topping the 0.5 per cent increase that economists had flagged. However, after adjusting for inflation individual spending fell 0.2 per cent.

Looking to the equity indexes, the Dow fell 42.17, or 0.37 per cent to 11284.15, while the broader S&P 500 shed 11.30, or 0.9 per cent to close at 1249.01. The NASDAQ was down 25.40, or 1.1 per cent at 2285.56.

Oil majors Exxon and Chevron weighed heavily on the blue chip benchmark, falling 3.9 per cent and 1.8 per cent respectively after softening demand pulled down crude prices.

NYMEX light crude for September delivery fell US$3.69 to settle at US$121.41 after trading as low as US$119.50 during the session.

The energy sector lost 4.1 per cent but managed to outperform material stocks, which dropped 4.5 per cent.

Concerns about global growth pressured industrial metals prices. Precious metals also declined with COMEX Gold for December delivery falling US$9.60 to US$907.90 an ounce.

Alcoa shed 3.4 per cent, while United States Steel was off 7.6 per cent and Monsanto gave up 6.8 per cent. Freeport-McMoRan Copper & Gold tumbled 12 per cent.

BHP Billiton and Rio Tinto fell 3.7 per cent and 5.7 per cent in US trade.

Financial stocks backtracked on news that Europe’s largest bank HSBC reported a 28 per cent slump in first half profit.

Citigroup lost 0.2 per cent, American Express shed 0.9 per cent and Bank of America declined 2.1 per cent.

Wachovia dropped 9.8 per cent after analysts said the stock's recent rally was overdone and urged investors to take profits. Meanwhile, Washington Mutual slid 8.5 per cent.

Goldman Sachs, Merrill Lynch and JPMorgan were off 2.3 per cent, 1.7 per cent and 1.5 per cent.

Elsewhere, WCI communities tumbled 47.6 per cent. The homebuilder filed for Chapter 11 bankruptcy protection after failing to obtain financing to stay afloat.

Fellow homebuilders Pulte Homes, Centex Corporation and KB Home fell 3.5 per cent, 1.5 per cent and 2.2 per cent respectively.

Looking to technology stocks, Qualcomm slid 4.7 per cent after Motorola said it hired the company’s chief operating officer. Motorola jumped 11.5 per cent.

Heavyweights Google, Yahoo! and Apple were down 1 per cent, 2.1 per cent and 2.2 per cent. Dell bucked the trend to add 4 per cent.

UK markets

Despite gaining more than 1 per cent early on Monday, Britain’s blue chip index fell for a third consecutive session. Miners were at the losing front, while HSBC’s disappointing profit result dampened enthusiasm.

The FTSE 100 shed 34.50, or 0.64 per cent to 5320.20.

The commodity-heavy UK market was dragged down as copper hit a four-month low and platinum fell 5 per cent to a six-month trough on concerns that an economic slowdown could dent demand.

Aussie miners BHP Billiton and Rio Tinto both lost around 4.8 per cent, Anglo American shed 5.5 per cent and Xstrata slipped 5.9 per cent. Kazakh copper major Kazakhmys plunged 9.5 per cent.

Weaker crude prices weighed on producers. Oil and gas major BG Group was off 2.2 per cent, BP fell 0.6 per cent and Royal Dutch Shell closed 0.2 per cent lower.

Oil and natural-gas explorer Imperial Energy rose 8 per cent to a six-month high after it was approached with a cash offer for the second time in a month.

Looking to financials, HSBC lost 1.1 per cent after saying net income for the six months ended 30 June fell to US$7.7 billion from US$10.9 billion a year earlier.

Royal Bank of Scotland edged 0.1 per cent lower, Barclays lost 0.7 per cent and HBOS slipped 0.8 per cent.

Airlines didn’t benefit from a drop in crude. Ryanair fell 3.9 per cent after Credit Suisse cut its rating on Europe's biggest discount carrier, citing a higher net debt estimate.

EasyJet slid 3.2 per cent after it too suffered a ratings cut from Credit Suisse, citing a more conservative valuation of its future aircraft orders. British Airways shed 1.5 per cent.

European markets

European shares lost for a third session in a row on Monday. Financial stocks were the biggest drag on markets as investors worried about the ongoing impact of the credit crunch.

Germany’s DAX lost 46.65, or 0.73 per cent to 6349.81, while France’s CAC 40 shed 33.71, or 0.78 per cent to 4280.63.

Banking stocks led declines with majors Deutsche Bank and Societe Generale down 0.7 per cent and 0.9 per cent. BNP Paribas fell 3.3 per cent after the group halted withdrawals from three funds invested in subprime debt.

Fortis, the Belgian financial-services firm that ousted its chief executive officer last month, fell 3.6 per cent in Brussels trading after saying second-quarter profit dropped 49 per cent on credit-related write downs.

Deutsche Boerse, operator of the biggest German stock exchange, fell 5 per cent as volume on its electronic Xetra trading system dropped 13 per cent last month.

The world's third-largest jeweller, Bulgari, slumped 8.3 per cent after second-quarter profit declined 9 per cent and watchmaker Swatch Group, lost 2.6 per cent.

Japanese markets

Japanese stocks fell on Monday after several companies reported disappointing profit results. Exporters lost ground on fears of higher losses from a worldwide economic slow down.

The Nikkei 225 fell 161.41 or 1.23 per cent to 12933.18.

Global demand stocks such as Nippon Steel Corp slid along with automakers as investors moved away from stocks that reflect the state of the global economy. The world’s second largest steel producer fell 7.1 per cent.

Isuzu Motors, Japan's largest maker of light-duty trucks, lost 7 per cent after reporting a 16 per cent drop in first quarter profit on higher material costs and a stronger yen cut earnings.

Mazda plunged the most in more than six years after net income fell more than expected. Its shares lost 8.8 per cent, while Nissan shed 4.8 per cent and Honda dropped 4.3 per cent.

Mitsui & Co, Japan’s second largest trading company, lost 7.5 per cent after reporting a fall in profit. Mizuho Financial Group dropped 4.7 per cent and Mitsubishi UFJ Financial Group shed 3 per cent.

Camera maker Olympus slumped 5.2 per cent after the company said first quarter profit plunged 63 per cent amid falling prices for digital cameras. Sony was off 2.4 per cent and Canon lost 2.2 per cent.

Hong Kong markets

Hong Kong shares lost ground on renewed worries about a US recession. Resources stocks also fell on concerns that China’s demand for commodities would slow and higher oil prices kept volumes thin.

The Hang Seng slipped 1.52 per cent or 347.68 points to 22514.92.

Metal stocks were hit on the news of softening demand and increasing costs. Maanshan Iron & Steel lost 6.3 per cent and Angang Steel fell 5.4 per cent and Baoshan Iron & Steel dropped 4.9 per cent.

Container and port operators slid on negative forecasts from analysts on global trade. Cosco Pacific, the world's fifth largest container port operator, tumbled 5.9 per cent, while China Shipping Container Lines was 4.6 per cent lighter.

Consumer products supplier Li & Fung dropped 3.4 per cent.

The Overnight MarketWatch report is provided by SHAW Stockbroking's egoli - simple but informative market news for the everyday investor.

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