* Global share prices down on bank industry concerns
* Bleak U.S. retail sales data lifts government debt
* Dollar benefits from safe-haven flow
By Daniel Bases
NEW YORK, Jan 14 (Reuters) - Grim U.S. retail sales data
and concerns that banks need even more money to save them from
collapse pulled U.S. and European share prices down on
Wednesday and led to buying of safe-haven government debt.
The U.S. dollar was supported by investors buying
Treasuries, which also undermined gold prices. Crude oil prices
dropped 5 percent due to a surprising rise in U.S. energy
inventories, the result of slowing economic demand.
European government bond yields hit their highest levels
since the introduction of the euro currency, which was
undermined by an expected half-percentage point interest rate
cut on Thursday by the European Central Bank, to 2.0 percent.
Bank stocks were hit particularly hard by news that
Citigroup Inc <C.N>, the one-stop financial behemoth catering
to institutional and retail investors that ushered in a
decade-long era of mega-banks, agreed to merge its Smith Barney
brokerage unit with Morgan Stanley's wealth management arm.
"You'd think the news on banks is baked in, but there's
still a lot of headwinds," said Rich Parker, head of trading at
Stanford Group in New York.
Citigroup is expected to shed more assets in a rush to
raise capital while isolating bad debts from the rest of the
bank. Investors expect a big fourth-quarter loss will be
announced on Jan. 22.
Citigroup's stock fell 18.81 percent to $4.79 while Morgan
Stanley <MS.N> lost 6.42 percent to $17.64.
In European trade, British bank Barclays <BARC.L> said it
was cutting more UK-based jobs in its retail and commercial
banking business. Its shares fell 14.4 percent.
HSBC's <HSBA.L> stock fell 9.8 percent after Morgan Stanley
analysts said the bank is likely to halve its dividend and may
need to raise up to $30 billion in a rights issue.
"The write-downs are starting to really scare people
outside of the banking area as well. Is there a balance sheet
out there that you can really trust? By all indications it
seems the recession is going to be a historically long one,"
said Parker."
The latest U.S. retail sales data supports that sentiment.
U.S. consumers kept a tighter grip on their dollars in
December as the economy deteriorated, causing U.S. retail sales
to fall a more-than-expected 2.7 percent.
The data was the latest in a series suggesting the
year-long U.S. recession was deepening and could be the longest
since the 1981 contraction that lasted 16 months.
Data showed Germany's economy grew at its slowest pace in
three years in 2008, with the economy contracting between 1.5
to 2.0 percent in the final three months.
MARKETS
The plunge in banking and financial stocks pulled major
stock indices lower, undermining the year-end rally that lifted
them more than 20 percent from their November lows.
Relentless waves of bad economic news and uncertainty about
the effectiveness of numerous government anti-recession
proposals mean rallies are opportunities to take profits.
In midday New York trade, the Dow Jones industrial average
<> fell 253.68 points, or 3.00 percent, to 8,194.88. The
Standard & Poor's 500 Index <.SPX> was down 28.96 points, or
3.32 percent, at 842.83. The Nasdaq Composite Index <> was
down 48.15 points, or 3.11 percent, at 1,498.31.
At the close of European trade, The FTSEurofirst 300
<> index of top European shares fell 4.3 percent to close
at 804.17 points, its lowest close since Dec. 29.
However stocks in Japan bucked the downtrend and the
benchmark Nikkei edged up 24.54 points to 8,438.45 <>
after falling 4.8 percent in the the previous session.
But in a sign of long-term problems for the market, the
Tokyo Stock Exchange said foreign investors, long a key source
of market energy in Japan, were net sellers of shares in 2008
for the first time in eight years.
The U.S. retail sales data and bank woes helped lift
government bonds and the U.S. dollar.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
34/32, its yield at 2.1828 percent. In Europe, the two-year
Schatz yield yield hit 1.455 percent, the first time since the
introduction of the euro currency.
The U.S. dollar gained 0.22 percent to 84.445 against a
basket of major trading-partner currencies <.DXY>.
"The retail sales number was not only negative for the U.S.
economy, but also negative for risk sentiment. Consequently, it
served to extend the dollar's gains as well as bolster demand
for the yen," said Michael Woolfolk, senior currency strategist
at The Bank of New York Mellon in New York.
Against the Japanese yen, the dollar <JPY=> was down 0.06
percent at 89.08 from a previous session close of 89.130. The
euro fell 0.33 percent to $1.3152 from the previous session
close of $1.3195.
Adding to bearish sentiment on the euro was a downgrading
of Greece's credit rating by Standard & Poor's, as well as
reports, later denied, that Irish Prime Minister Brian Cowen
said IMF help may be needed if Ireland's economic downturn
worsens.
In energy and commodities trading, U.S. light sweet crude
oil <CLc1> fell 4.87 percent to $35.94 per barrel and spot gold
prices <XAU=> fell 1.35 percent, to $810.05.
(Additional reporting by Ellis Mnyandu, Wanfeng Zhou in New
York; Lucia Mutikani in Washington; Natsuko Waki, George
Matlock and Brian Gorman in London; Elaine Lies in Tokyo;
Editing by Dan Grebler)
