* U.S. inventory data, bearish analyst dent stocks
* Chinese data disappoints, lifting yen
* Bond yields decline, Fed meeting eyed
By Al Yoon
NEW YORK, Aug 11 (Reuters) - U.S. and European stocks
slumped on Tuesday on weakness in banking shares, failing to
follow through on strength in Asia where Japanese shares hit a
10-month high.
The Japanese yen rose against other major currencies on
disappointing Chinese economic data and investors' increased
risk aversion.
Financial shares led U.S. stocks lower after an influential
analyst said recent gains were overdone and after a report
showed American businesses have not signaled confidence in the
economy by boosting inventory. The two factors led to increased
caution among investors, who are questioning a five-month rally
in major stock indexes.
Wall Street turned lower after the U.S. Commerce Department
said inventories at wholesalers fell 1.7 percent in June,
marking a 10th consecutive decline to the lowest level in more
than two years. The decline was nearly double what analysts had
expected, casting a bearish tone over markets that had been
grasping at signs that the U.S. recession will soon end.
Richard Bove, a veteran banking analyst at Rochdale
Securities, said financial stocks would likely see a short-term
pullback because fundamentals have yet to improve and bank
earnings may be weak into the third and fourth quarters.
Bank of America Corp <BAC.N> fell 4.98 percent to $15.85
and JPMorgan Chase & Co <JPM.N> declined 3.4 percent to
$41.24.
The benchmark Standard & Poor's 500 index <.SPX> declined
12.75 points, or 1.27 percent, to 994.35, edging further from
last week's peak at 1,081. The Dow Jones Industrial Average
<> slumped 96.50 points, or 1.03 percent, to 9,241.45.
The downbeat mood extended to Europe where the pan-European
FTSEurofirst 300 <> index of top shares fell 1.31
percent.
Denmark's biggest financial group, Danske Bank <DANSKE.CO>,
fell 2.5 percent after it reported a drop in second-quarter
profit. France's Natixis <CNAT.PA> plunged 17.5 percent after
the firm's parent, BCPE bank, told French market regulator AMF
it does not plan to delist Natixis as part of a strategic
review.
In Asia, Japan's Nikkei <> rose 0.58 percent to
10,585.46, its highest close since Oct. 3, with construction
stocks gaining on expectations for reconstruction efforts after
recent Asian floods and a earthquake. As in Europe and the
United States, the Japanese market is also anticipating
recovery in stronger earnings that have yet to materialize,
said Mitsushige Akino, chief fund manager at Ichiyoshi
Investment Management.
"Evidence so far is not yet convincing enough for such a
recovery for real," Akino said. "Trade could be rangebound
until earnings reports for the first half (April-September) run
their course."
China reported below-forecast growth in factory output and
investment, also reminding financial markets that the world's
third-largest economy is not yet back on a solid footing.
The U.S. data eroded gains broadly around the globe, with
the MSCI-all-country world index <.MIWD00000PUS>, the global
benchmark for many investors, edging lower about 1.0 percent.
The index has gained about 19 percent this year and is up
some 58 percent since its March low. Investors are divided
about whether a bull market or a retrenchment will follow.
"We do have concerns about the sustainability of the rally,
but we would also point out that valuation measures remain
attractive and that there is still a large amount of cash on
the sidelines waiting to be invested," Bob Doll, global chief
investment officer for equities at BlackRock, said in a note.
"As a result, we believe the current cyclical bull market
remains intact."
Stock declines helped revived the bid for government debt,
which for weeks had suffered as expectations of faster global
growth enticed investors to buy more volatile equity assets.
Traders were looking ahead to the conclusion on Wednesday of a
meeting of the Federal Reserve, which is expected to leave U.S.
interest rates unchanged.
Two-year U.S. Treasury note yields declined 0.06 percentage
point to 1.18 percent, while 10-year levels <US10YT=RR> fell
0.1 percentage point to 3.67 percent. The two-year Schatz yield
<EU2YT=RR> declined 0.04 point to 1.49 percent as the 10-year
<EU10YT=RR> yield was near unchanged at 3.47 percent.
The U.S. dollar declined 0.15 percent against a basket of
major currencies <.DXY>.
The yen gained against most major currencies on Tuesday as
investors bought the Japanese unit in a risk-aversion tactic
following the disappointing data from China.
Against the yen, the dollar <JPY=> declined 1.27 percent to
95.88. The euro <EUR=> edged up 0.04 percent to $1.4149.
In energy and commodities prices, U.S. light sweet crude
oil <CLc1> fell $1.21, or 1.71 percent, to $69.39 per barrel,
and gold <XAU=> rose 75 cents, or 0.08 percent, to $945.40.
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
Blog click on http://blogs.reuters.com/macroscope; for Hedge
Hub click on http://blogs.reuters.com/hedgehub)
(Editing by Kenneth Barry)
