Markets mostly fell Thursday as investors struggled to keep up with Wall Street's rally, despite fresh data reinforcing optimism the Federal Reserve could hold off any more interest rate hikes this year, while another weak China reading dragged the mood.
New York traders cheered news that fewer jobs were created in the US private sector and second-quarter growth was less than initially thought, suggesting the economy was softening after more than a year of monetary tightening.
The readings came a day after figures on job openings and consumer confidence that were seen as giving the Fed room to step back from pushing borrowing costs higher.
Investors now put the chances of another lift this year at less than 50 per cent.
The prospect of a less hawkish approach from the US central bank has provided a much-needed boost to equities this week, having endured a painful August.
Focus is now on Thursday's release of the US central bank's preferred gauge of inflation, the personal consumption expenditures (PCE) price index, which will be followed by readings on factory activity and non-farm payrolls for August.
"Investors are reacting with a 'bad news is good news' approach, betting that a slowing economy will lead to a less aggressive Federal Reserve," Mark Hackett, at Nationwide Funds Group, said.
However, there is now a worry that the data will continue to come in below forecast and the economy could slip into recession.
"This has calmed investors, but adds an element of risk if the pendulum continues to swing, as an earnings recovery is critical for a continued strong market," Hackett added.
Meanwhile, China on Thursday revealed that factory activity shrank again this month while services weakened, which will likely pile further pressure on authorities to press ahead with measures to kickstart the sputtering economy.
Officials have announced a series of pledges to help various sectors — particularly the property industry — and there is an expectation that more is on the way.
In the latest measure, local reports Thursday said the central bank is drawing up policies that will make it easier for private firms, including developers, to access funding.
However, analysts say the only thing that will appease investors is a wide-ranging "bazooka" of big spending.
"There remains an undercurrent of optimism regarding additional policy measures anticipated for China," said SPI Asset Management's Stephen Innes.
"Nevertheless, tenacious economic apprehensions concerning China persist. The current perspective on China's growth trajectory has become increasingly fixated on the pivotal policy choices that Chinese authorities must navigate."
Fresh data showing the country's manufacturing sector contracted for a fifth straight month in August added to the arguments for more help.
The need to provide support to the embattled real estate sector was highlighted Wednesday when industry giant Country Garden reported losses of about $6.7 billion for the first half of the year and warned of possible default.
The company's cash flow problems have ignited fears that it could collapse and spread turbulence through China's economy and financial system.
It is due to hold a vote later Thursday by bondholders on extending repayment terms.
Hong Kong and Shanghai fell along with Seoul, Taipei, Mumbai, Bangkok, Jakarta and Manila while Tokyo, Sydney, Singapore and Wellington rose.
London and Paris fell at the open.
Banking giant UBS surged more than five per cent at the open in Zurich after posting a $29 billion net profit in the second quarter amid its takeover of fallen rival Credit Suisse, which saw over $10 billion in losses.
It also said the merger would cause 3,000 job cuts in Switzerland in the coming years.
