* U.S., European shares fall on slow growth, credit fears
* Bonds rise for third straight day in safe-haven buying
* U.S. dollar off 6-month highs vs euro, commodities weigh
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Aug 18 (Reuters) - Renewed credit worries knocked
down global stocks on Monday amid new fears that the U.S.
government will need to prop up the two largest mortgage
finance companies, sending investors to the relative safety of
government debt.
The U.S. dollar slipped against the yen and euro, weighed
by relatively steady oil prices, prompting investors to take
profits on the greenback's recent sharp rally.
Oil see-sawed between slight gains and losses, hovering
around $113 a barrel, as a tropical storm looked set to avoid
major U.S. oil and gas infrastructure in the Gulf of Mexico,
while investors continued to eye the tense situation in
Georgia.
Investors dumped shares Fannie Mae <FNM.N> and Freddie Mac
<FRE.N> after Barron's newspaper reported the increasing
likelihood of a U.S. Treasury bailout that would approach
nationalization of the two housing finance titans.
A spokeswoman for the U.S. Treasury said the department has
no plans to use its authority to backstop the two funding
agencies.
Equity investors also fretted over a report from The Wall
Street that said some analysts are girding for investment bank
Lehman Brothers <LEH.N> to announce a third-quarter loss of
$1.8 billion or more.
Shares of Fannie and Freddie each fell more than 17
percent, while Lehman slipped nearly 4 percent. Fannie hit an
18-year low of $6.39 and was trading down 19 percent at $6.41
before 1 p.m.
The S&P financial index <.GSPF> fell 2.5 percent.
"Investors have been trying to put the housing and credit
crisis behind them," said Paul Nolte, director of investments
at Hinsdale Associates in Hinsdale, Illinois. "But every time
news like this comes up they have to readjust their thinking."
Before 1 p.m., the Dow Jones industrial average <> was
down 148.51 points, or 1.27 percent, at 11,511.39. The Standard
& Poor's 500 Index <.SPX> was down 14.66 points, or 1.13
percent, at 1,283.54. The Nasdaq Composite Index <> was
down 32.05 points, or 1.31 percent, at 2,420.47.
EUROPE STOCKS LOWER AS FIRMER EURO WEIGHS
European shares fell slightly in a volatile session
dominated by a brief pick-up in oil prices, which lifted energy
shares. But a firmer euro that dented retail and auto stocks
quashed the early boost from crude oil.
Auto stocks ranked among some of the biggest individual
drags, while banks were the worst performing sector on the
broader European market.
The FTSEurofirst 300 index of leading European shares
<> fell 0.09 percent at 1,189.15 points.
Declining crude prices eroded some of the gains in oil and
gas shares, but provided growing relief that inflationary
pressures are receding after crude's record highs around $147.
"The oil price is very important and is indeed part of the
reason why we've seen investor sentiment look a bit stronger
over the course of the last few weeks," said Henk Potts, a
strategist at Barclays Stockbrokers.
"Short term it is still a pretty negative picture of
slowing economic growth, which continues to be a factor," he
said.
Euro zone debt extended last week's rally as evidence the
region's economy was losing momentum boosted expectations that
the European Central Bank would keep interest rates on hold in
the near term before eventually loosening policy.
A similar view on rates has taken hold in the United
States, as declining energy prices ease fears of inflation.
The benchmark 10-year U.S. Treasury note <US10YT=RR> gaine
8/32 to yield 3.8 percent. The 30-year U.S. Treasury
bond<US30YT=RR> rose 18/32 to yield 4.44 percent.
Bund futures in Europe rose at one point to their highest
since mid-May, while yields, which move inversely to prices,
touched similar lows.
"You have stocks selling off and concerns continuing about
the health of financial companies and this stokes the
flight-to-quality bid for Treasuries," said David Coard, head
of fixed income sales and trading at Williams Capital Group in
New York.
Oil prices slipped as worries about a brooding tropical
storm dissipated.
"The storm is largely irrelevant, there is no shortage of
refinery capacity in the United States even if it were to
damage one of the refineries," said John Kemp, economist at RBS
Sempra.
U.S. light sweet crude oil <CLc1> rose 18 cents to $113.95
per barrel.
U.S. gold futures rose following the previous session's
nearly 3 percent tumble, trading near $800 an ounce.
Spot gold prices <XAU=> rose $16.70 to $802.20 an ounce.
The dollar retreated from seven-month highs against the yen
as investors took advantage of a rebound in commodities to take
profits.
Despite the dollar's pullback, investors remained
optimistic on the currency's prospects, convinced that it has
turned the corner. Steadier U.S. growth, oil's slide from
record peaks, and a deteriorating outlook outside the United
States have underpinned the dollar in the last few weeks.
"The dollar is in a consolidative mode and with commodities
up; investors have taken that as an excuse to take the dollar
lower," said Win Thin, senior currency strategist at Brown
Brothers Harriman in New York.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 0.33 percent at 76.904. Against the
yen, the dollar <JPY=> fell 0.37 percent at 110.08.
The euro <EUR=> rose 0.37 percent at $1.4742.
Asian stock markets were mixed. Shares outside Japan
<.MIAPJ0000PUS> hit a 17-month low on a view that a slowdown in
developed economies will likely hit exports even harder.
Japan's Nikkei share average <> rose 1.1 percent as
investors looked for bargains after a recent market sell-off.
(Reporting by Ellis Mnyandu, Chris Reese, John Parry, Gertrude
Chavez-Dreyfuss in New York and Amanda Cooper, Kirsten Donovan,
Bate Felix in London; Writing by Herbert Lash; Editing by
Leslie Adler)
