* U.S. stocks turn lower as profit warnings spread fear
* US dollar rises after better than expected ISM
* Oil falls after data shows big rise in US supplies
* Debt prices sag on better-than-expected economic data
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Feb 4 (Reuters) - U.S. stocks turned lower on
Wednesday after profit warnings at Kraft Foods and other
consumer companies highlighted the recession's depth and offset
a few bright spots in economic news that bolstered the U.S.
dollar.
Oil settled down at near $40 a barrel after a government
report showed a larger-than-expected build in U.S. crude
inventories, another sign of economic weakness. Crude oil
prices had earlier been supported by signs OPEC might increase
record supply cuts.
Fear that the U.S. government's need to issue record
amounts of Treasury debt to fund its economic stimulus package
and banking bailout, along with slightly better data on the
services sectors and labor market, helped push Treasury prices
lower, pushing up benchmark yields to fresh two-month highs.
The U.S. dollar rose against the yen after data showed the
U.S. services sector was not contracting as quickly as thought.
The euro's decline began earlier with news of a downgrade in
Russian sovereign debt.
But the data also showed the United States is still
hemorrhaging jobs and may not stop bleeding for at least
another year even if the U.S. government acts quickly to
stimulate the economy. For details, see []
The dismal economic news and bleak outlook from companies
such as Kraft, that had been expected to hold up well in a
downturn, soured investor sentiment and sent stocks lower.
Kraft <KFT.N> and Sara Lee Corp <SLE.N> cut their profit
forecasts for the year. U.S. shipment volume at Kraft weakened
as retailers cut inventories and both companies saw consumers
turn to lower-priced competitors.
Costco Wholesale Corp <COST.O> warned that quarterly
earnings would be well below Wall Street estimates as sales at
stores open at least a year fell 2.0 percent in January.
Richard Galanti, Costco's chief financial officer, said the
U.S. economy has "kind of hit a bottom" but it could get worse
or stay depressed for many months, if not a year.
Kraft shares fell 9.2 percent, Sara Lee about 7.2 percent
and Costco 6.8 percent.
As the market closed, Microsoft <MSFT.O> Chairman Bill
Gates said that the U.S. economy has three or four "very tough"
years ahead.
Investors have now turned to the U.S. unemployment report
for January on Friday, which will provide a better view of the
economy, said Sung Won Sohn, professor of economics at
California State University in Camarillo, California.
"Perhaps the economy is trying to find a bottom and if we
get a string of reports like this it would be very good for
confidence in the economy," Sohn said about the ISM
non-manufacturing report.
The Dow Jones industrial average <> fell 121.70 points,
or 1.51 percent, at 7,956.66. The Standard & Poor's 500 Index
<.SPX> slipped 6.30 points, or 0.75 percent, at 832.21. The
Nasdaq Composite Index <> shed 1.25 points, or 0.08
percent, at 1,515.05.
The FTSEurofirst 300 <> index of top European shares
rose 2.5 percent to close at 811.41 points as investors cheered
the better-than-expected data in the euro zone and U.S.
services sector and before the mood on Wall Street soured.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.84 percent. Against the yen,
the dollar <JPY=> rose 0.21 percent at 89.44.
The euro <EUR=> fell 1.47 percent at $1.2844.
Losses in the U.S. Treasuries underscored weakness in
government debt this year, a dramatic turnaround from the
stampede into bonds at the height of the credit crunch.
The sell-off reflects some unwinding of safe-haven bonds
and other low-risk assets, in addition to anxiety about the
prospect for long-term inflation due to surging debt supply.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
10/32 in price to yield 2.92 percent. The 2-year U.S. Treasury
note <US2YT=RR> fell 2/32 in price to yield 0.99 percent.
EIA data showed total weekly crude stocks rose 7.2 million
barrels to 346.1 million barrels.
U.S. light crude for March delivery <CLc1> settled at
$40.32, down 46 cents, after falling to a session low of
$39.74.
London Brent <LCOc1> settled at $44.15, up 7 cents.
Gold climbed above $900 an ounce on economic worries.
"Gold is a natural place for people to turn to in these
times, when assets such as mortgage backed securities, that
were regarded as ultra safe 18 months ago, have turned out to
be anything but," said Evy Hambro, manager of BlackRock's World
Gold and World Mining funds.
U.S. gold futures for April delivery <GCJ9> settled up
$9.70 at $902.20 an ounce in New York.
Overnight in Asia, the MSCI index of Asia-Pacific stocks
outside Japan <.MIAPJ0000PUS> rose 0.9 percent, while Japan's
Nikkei average <> rose 2.7 percent.
(Reporting by Leah Schnurr, Richard Leong and Vivianne
Rodrigues in New York; Christopher Johnson, Ian Chua and Brian
Gorman in London; writing by Herbert Lash)
