* Euro falls on debt crisis spreading; ECB warning
* U.S. bonds rise on risk aversion
* Stocks zig-zag on euro wariness, upbeat US data
By Manuela Badawy
NEW YORK, June 1 (Reuters) - The euro fell to a four-year
low on Tuesday on worries the euro zone's debt crisis is
spreading to its banking system, and the price of U.S.
Treasuries and gold rose as investors sought safe havens.
U.S. stocks bounced between negative and positive
territory, hurt by a warning from the European Central Bank on
the region's public finances but buttressed by
better-than-expected U.S. construction and manufacturing data.
The European Central Bank warned on Monday that euro zone
banks could face another 195 billion euros $239 billion in a
"second wave" of potential loan losses over the next 19 months
due to the the financial crisis. For more, see []
U.S. and UK financial markets were closed on Monday for
national holidays.
"The ECB warning on Monday set the stage for euro selling,"
said Matthew Strauss, senior currency strategist at RBC Capital
Markets in Toronto. "Markets remain jittery and overall risk
sentiment is bearish," he said.
After May marked the most volatile month of trading since
the aftermath of Lehman Brothers' collapse in late 2008,
investors focused on concerns that growth would slow in a euro
zone struggling to rein in debt, in turn reducing demand for
exports from economies like China, slowing production there.
Concerns over another crisis in the banking sector were
compounded by data signaling slowing manufacturing growth in
Europe and China. In the United States, a revival in the
factory sector due to overseas demand and inventory restocking
has helped to lead an economic rebound over the past three
quarters.
"Treasuries and the dollar remain the safe haven because
the euro zone problem will not go away any time soon," said
Frank Cholly Sr., a senior market strategist at Lind Waldock in
Chicago.
European stocks eked out a small gain, reversing losses
that had dragged the pan-European FTSEurofirst 300 <>
down nearly 2 percent. The strong U.S. data helped to ease
investors' worries about the global economic recovery.
BP <BP.L> tumbled 13.1 percent after its attempt to plug
the worst oil spill in U.S. history in the Gulf of Mexico
failed.
U.S. government bond prices rose with the benchmark 10-year
U.S. Treasury note <US10YT=RR> up 4/32, with the yield at
3.2867 percent. The 2-year U.S. Treasury note <US2YT=RR> was
down 1/32, with the yield at 0.7816 percent. The 30-year U.S.
Treasury bond <US30YT=RR> was up 10/32, with the yield at 4.198
percent.
The Institute for Supply Management said U.S. manufacturing
sector expanded for a tenth straight month but at a slower pace
than in April, which was the highest in almost six years
[]. Meanwhile employment rose to its best level in
six years, according to an industry report [].
The Dow Jones industrial average <> was up 40.58
points, or 0.40 percent, at 10,177.21. The Standard & Poor's
500 Index <.SPX> was down 1.30 points, or 0.12 percent, at
1,088.11. The Nasdaq Composite Index <> was up 1.08
points, or 0.05 percent, at 2,258.12.
Stocks were helped by showing the U.S. manufacturing
expanded in for a tenth straight month failed to quell fears of
a slowing economy.
The Commerce Department said construction spending rose 2.7
percent, and investment in private construction surged 2.9
percent, the largest increase since July 2004. Also, the
Institute for Supply Management's manufacturing index expanded
more than expected in May. For details, see [] and
[]
Energy stocks were among the worst performers on Wall
Street, including U.S.-listed shares of BP Plc <BP.N>, which
tumbled 11.6 percent to $37.95. []
Halliburton Co <HAL.N> slumped 11.8 percent to $21.91 as
Goldman Sachs removed the oilfield services company from its
conviction buy list, citing short-term concerns resulting from
the BP oil spill. The S&P Energy index <.GSPE> fell 1.6
percent.
"The BP news isn't helping markets today. It's going to
weigh on oil companies watch and keep things in a state of flux
in the energy sector for a while," said Kurt Brunner, portfolio
manager at Swarthmore Group in Philadelphia, Pennsylvania.
The MSCI world equity index <.MIWD00000PUS> fell 0.3
percent. The index has lost nearly 10 percent since April,
putting it on track for its biggest quarterly loss since March
2009.
The pan-European FTSEurofirst 300 index rose 0.2 percent to
close at 1,002.80 points.
The euro <EUR=> was down 0.29 percent at $1.2269, after
having fallen to a four-year low against the dollar at $1.2112,
its lowest since April 2006 as signs the euro zone's debt
crisis is spreading to its banking system. The dollar rose to
its highest in 15 months against a basket of major currencies.
A survey showed manufacturing activity in the euro zone
expanded in May at a considerably more sluggish pace than in
April, while separate data showed the pace of China's factory
output eased last month.
China's PMI, an indicator of factory activity, compiled by
the China Federation of Logistics and Purchasing, fell to 53.9
in May from 55.7 in April, close to analysts forecasts of
54.0.
However, it stood above the threshold of 50 that separates
expansion from contraction for the 15th consecutive month.
"The figures point to slower economic growth toward the end
of this year," said Eugen Weinberg, commodities analyst at
Commerzbank in Frankfurt. The fear is that Chinese officials
will tighten monetary policy and this will also dampen
growth."
Oil <CLc1> was 0.6 percent lower at $73.33 a barrel as risk
aversion settled after the positive blip of U.S. data.
Spot gold was bid at $1,228.25 an ounce at 1525 GMT,
against $1,214.20 late in New York on Monday. U.S. gold futures
for June delivery on the COMEX division of the New York
Mercantile Exchange rose $15.40 to $1,227.90 an ounce.
(Additional reporting by Vivianne Rodrigues and Richard
Leong)
