(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, March 10 (Reuters) - A new wave of credit fears
swamped Wall Street on Monday, pushing stocks to 17-month lows
and bond prices sharply higher, as skittish investors reacted
to rumors and news of firms exposed to the mortgage crisis.
A sell-off in financial stocks accelerated around midday
amid talk -- later strongly denied -- that Bear Stearns faced
liquidity issues. The cost to insure debt of the brokerage icon
surged, and its shares plunged more than 11 percent.
U.S. Treasury debt prices jumped and interest rate swap
spreads gapped wider on the speculation, just one more sign of
how markets have tightened amid a growing list of troubles that
have jolted financial sector.
Oil shot to a record over $108 a barrel as investors bought
crude contracts as a hedge against a depressed dollar, which
tumbled against the yen amid fears of a U.S. recession.
Recession fears mounted on Friday's report of the biggest
U.S. job losses in five years and strains in the credit market
have sunk the dollar and raised expectations the Federal
Reserve could soon cut interest rates again to prop up the
economy.
News about the depth of the mortgage-sparked credit crisis
remained bearish.
Private equity and real estate company Blackstone Group LP
said challenging business conditions and a write-down of bond
insurer FGIC led to a huge fourth-quarter slump in earnings.
Citigroup forecast U.S. investment banks would suffer about
$9 billion of write-downs in the first quarter, driven by more
leveraged loan and mortgage-related losses.
And the head of Japan's financial regulator said global
financial losses from the crisis have totaled $215 billion,
with a little more than half coming from the United States.
The blue-chip Dow Jones industrial average closed down to
lows last seen in October 2006, and the benchmark Standard &
Poor's 500 Index closed to August 2006 lows.
Based on the latest available data, the Dow Jones
industrial average <> fell 153.54 points, or 1.29 percent,
to end unofficially at 11,740.15. The Standard & Poor's 500
Index <.SPX> was down 19.98 points, or 1.54 percent, to finish
unofficially at 1,273.39. The Nasdaq Composite Index <>
was down 43.15 points, or 1.95 percent, to close unofficially
at 2,169.34.
Bear Stearns Cos <BSC.N> and its former chief executive
denied market speculation that the investment bank faced a cash
crunch, helping pare losses after its shares had fallen to a
five-year low, though the stock remained depressed, closing
down 11 percent at $62.30.
Increased worries that a credit crisis would lead to more
bank losses and cast a longer economic shadow also hit European
shares, which fell to their lowest close since mid-2006.
The FTSEurofirst 300 <> index of top European shares
ended 1.15 percent lower at 1,254.76 points. Mining shares took
the most points off the index, followed by banking shares.
The top three negative weights on the index were mining
stocks Rio Tinto <RIO.L>, BHP Billiton <BLT.L> and Anglo
American <AAL.L>, which fell between 4 and 6 percent, driven by
a fall in copper prices.
UBS <UBSN.VX> fell 4 percent, BNP Paribas <BNPP.PA> 2.4
percent and Credit Suisse <CSGN.VX> 3.2 percent.
"People are concerned at signs that the financial system is
not repairing itself, and that earnings outside the financial
sector are now going to get hurt," said John Haynes, strategist
at Rensburg Sheppard Investment Management.
"Interest rate cuts are not enough -- this is beginning to
go beyond the Fed," he said.
MSCI's main gauge of world shares <.MIWD00000PUS>, a
benchmark for many professional investors, was down 0.3 percent
for a more than 11 percent loss since the beginning of the
year.
Earlier, Japan's Nikkei finished down 250.67 points or 2
percent at 12,532.13, its lowest since Sept. 1, 2005. The
broader TOPIX <> closed down 1.9 percent at 1,224.39.
U.S. Treasury debt prices extended gains, pushing yields on
the benchmark 10-year note down to about 3.45 percent, and
Euro-zone government bond futures jumped to their highest level
in 15 months on the rumors concerning Bear Stearns.
A government employment report on Friday that showed a
second straight month of job losses led Goldman Sachs to change
its view on monetary policy and say the Federal Reserve may cut
interest rates ahead of a policy-setting meeting on March 18.
The Fed will cut the benchmark federal funds rate to 2
percent by late April from a current 3 percent, most likely in
half-percentage point steps at the next two meetings, it said.
The February jobs report last week leaves little doubt that
the U.S. economy is in recession, Goldman said.
Oil extended a rally led by investors seeking a hedge
against the tumbling dollar and inflation.
U.S. crude <CLc1> settled up $2.75 at $107.90 a barrel, off
a record $108.21 hit earlier in the session. London Brent crude
<LCOc1> jumped $1.78 to settle at $104.16 a barrel.
Speculators have rushed into commodities to hedge against
the weaker dollar as well as prospects that further Fed rate
cuts could fuel inflation, helping to lift oil to average over
$95 so far this year despite signs the faltering U.S. economy
is crimping energy demand.
"It's the same thing that has been going on, it's a
shark-like feeding frenzy on commodities. A lot of people feel
the latest numbers on employment were bearish on the economy,"
said Peter Beutel, president of Cameron Hanover.
"The bottom line is people believe that as long as we see
bearish numbers it will lead to another Fed cut."
The dollar tumbled against the yen on Monday as fears of a
U.S. recession hit stock prices. []
Gold turned initial losses to end higher, as record high
oil prices and a weaker dollar prompted speculative buying a
broad-based precious metals recovery.
Spot gold <XAU=> fell as low as $961.00 an ounce and was at
$974.10/974.90 at 2:15 p.m. EDT (1815 GMT), against
$972.60/973.40 late in New York on Friday.
Gold is generally seen as a hedge against oil-led
inflation.
(Reporting by Kristina Cooke Pedro Nicolaci da Costa, Steven
C. Johnson and Atul Prakash in London. Editing by Richard
Satran)
(Writing by Herbert Lash)
