* World shares decline after U.S. inventory data
* Chinese data disappoints, lifting yen
* Bond yields decline, Fed meeting eyed
By Al Yoon and Jeremy Gaunt
NEW YORK/LONDON, Aug 11 (Reuters) - U.S. and European
stocks slumped on Tuesday as doubts lingered about whether
banks were clear of the financial crisis, though Japanese
stocks hit a 10-month high.
Financial shares led U.S. stocks lower after an influential
analyst said recent gains overdone, and after a report showed
American businesses have not signaled confidence in the economy
by boosting inventories. The two factors led to increased
caution among investors, who are now questioning five months of
rallies in major stock indexes.
Stocks 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 levels in more than two
years. The decline was nearly double what analysts expected,
casting a bearish tone over markets that had been looking for
an end to the U.S. recession.
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 4.14 percent to $15.99
and JPMorganChase <JPM.N> declined 3.54 percent to $41.19.
The benchmark Standard & Poor's 500 index <.SPX> was down
14.17 to 992.93 at midsession in New York compared with last
week's 1,081 peak. The downbeat mood carried over into Europe
where the pan-European FTSEurofirst 300 <> index of top
shares fell 1.3 percent.
Denmark's biggest financial group Danske Bank <DANSKE.CO>
saw its stock fall 2.5 percent after it reported a drop in
second-quarter profit. France's Natixis <CNAT.PA> plunged 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 in wakes of a battering storm and an earthquake
in East Asia. As in Europe and the U.S., the Japanese market is
also anticipating recovery in 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 index declines helped revived the bid for government
debt, which for weeks had suffered as expectations of faster
global growth emboldened investors to feel safer buying more
volatile equity assets. Traders also eyed results from a
two-day meeting of the Federal Reserve ending Wednesday.
Benchmark two-year U.S. Treasury note yields declined 0.04
percentage point to 1.2 percent, while 10-year levels fell 0.06
percentage point to 3.71 percent. The two-year Schatz yield
<EU2YT=RR> declined 0.03 point to 1.49 percent as the 10-year
<EU10YT=RR> yield was near unchanged at 3.47 percent.
The U.S. dollar declined 0.2 percent against a basket of
major currencies <.DXY>.
The yen gained against most major currencies on Tuesday as
investors bought the Japanese unit to reduce risk following the
disappointing data from China.
Against the yen, the dollar <JPY=> declined 1.31 percent to
95.84. The euro <EUR=> climbed 0.10 percent to $1.4158 from a
previous session close of $1.4144.
In energy and commodities prices, U.S. light sweet crude
oil <CLc1> fell $1.51, or 2.14 percent, to $69.09 per barrel,
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