By Will Horner

European stocks slipped Friday, with Italian equities falling hardest, dragged down by a simmering confrontation between Italy and the European Union over the nation's proposed budget.

The Stoxx Europe 600 fell 0.5% in morning trade, with the auto and parts subsector falling hardest, down 2.8%.

In Asia, the Shenzhen A Share and the Shanghai Composite were both up 2.6% after disappointing Chinese economic data that initially rattled markets. The Nikkei fell 0.6%.

U.S. futures were broadly flat after a bruising day Thursday.

In Europe, the clash between Italy's populist coalition government and the European Commission continued to spook investors. The two parties are at odds over Italy's proposed budget.

In a letter published Thursday, the European Commission said Italy's spending plans were "unprecedented" and a "serious concern."

The Italian FTSE MIB was down 1.22%. The yield on the Italian 10-year note was up 0.1% at 3.778%, the highest since early 2014, according to Refinitiv. Yields move inversely to prices.

Investors are concerned about a potential downgrade in Italy's credit rating, said analysts at UniCredit in a note to clients.

"We see a very low chance that Moody's will publish the result of its rating review as early as today, but this remote risk might nevertheless have contributed" to the spread between Italian bonds and their German counterparts widening on Thursday, they said.

A rebound in Chinese stocks Friday came after an intervention from regulators that calmed investors despite disappointing economic data.

China's central bank governor and banking and securities regulators said recent volatility in Chinese stocks didn't reflect the nation's economic fundamentals and "stable financial system."

That reassurance boosted Chinese assets, despite data released Friday that showed China's third-quarter GDP had slowed to 6.5% from the previous quarter's 6.7%. Growth in industrial output and consumption also slowed, but exports held.

Investors in Asia are still nervous of the brewing trade war between the U.S. and China and the yuan's steady depreciation, said Sophie Huynh, cross-asset strategist at Société Générale, but she added that looking ahead, Chinese equities still have something to offer.

"We think that China is a medium-term bullish story and we would keep Chinese assets in portfolios," Ms. Huynh said.

"The gradual integration of China equities and bonds in global benchmarks acts as a support, while we also believe that China could play a role of anchor for emerging markets."

In the U.S., stocks fell sharply Thursday. The Dow Jones Industrial Average fell more than 300 points, or 1.3%. The S&P 500 and the Nasdaq Composite fell 1.4% and 2.1%, respectively.

The selloff accelerated after news that Treasury Secretary Steven Mnuchin had pulled out of an investment conference in Saudi Arabia.

The coming conference had been the focus of attention due to the continuing dispute between Washington and Riyadh surrounding the disappearance of Saudi journalist Jamal Khashoggi.

The dollar was broadly flat, according to the WSJ dollar index, which tracks the greenback against a basket of 16 currencies.

In commodities, Brent crude oil was up 0.2% and gold was roughly flat.

(END) Dow Jones Newswires

October 19, 2018 05:36 ET (09:36 GMT)

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