* Global stocks stumble on weak manufacturing data, banks
* Dollar slides across board, hits 2-month low vs euro
* Government debt rises as deflation fears grow after data
* Oil eases on economic worries despite possible OPEC cut
(Recasts with U.S. markets, changes dateline; previous
LONDON)
By Herbert Lash
NEW YORK, Dec 15 (Reuters) - U.S. and European stocks fell
on Monday as New York state manufacturing data pointed to
tumbling demand and more signs of economic weakness that
weighed on the dollar and helped lift government debt prices on
either side of the Atlantic.
Oil prices eased as deepening economic worries countered
expectations that the Organization of Petroleum Exporting
Countries would agree to its biggest supply cut ever when the
cartel meets in Algeria this week to prop up slumping crude.
The euro rose more than 2 percent to a two-month high
against the dollar on speculation the Federal Reserve will cut
interest rates to a record low near zero on Tuesday, a move
that would further erode the greenback's yield appeal.
The urgency for the Fed to take more bold steps intensified
after fresh manufacturing data for December showed evidence of
deflation. The prices paid index in the New York Fed's "Empire
State" manufacturing report posted a record decline.
"We are still getting poor economic data," said Bernard
McAlinden, market strategist at NCB Stockbrokers in Dublin.
"The New York manufacturing index was weaker again in
December and some earning figures are coming out negative.
There are worries the market has not yet priced in all of the
concerns about the economies and earnings," he said.
The one-month Treasury bill rate <US1MT=RR> briefly traded
below zero percent, suggesting investors were willing to suffer
small losses as long as they believed most of their principal
is shielded from the steep losses in many investor portfolios.
Buyers "are pretty much telling the market that they don't
think we are near a bottom and the current recession will be
with us for a while," said Kevin Giddis, head of fixed income
sales, trading and research at Morgan Keegan in Memphis.
"It doesn't seem to matter how much the Treasury brings to
market because investors are so worried about the stability of
the financial system that they are willing to accept zero
return on their investment," he said.
Renewed worries about a deep recession weighed on U.S. and
European equities, with banks the big losers. A 6.2 percent
slide in JPMorgan <JPM.N> led the Dow lower while BNP Paribas
<BNPP.PA> led shares lower in Europe, off 10 percent.
Investors worried about potential heavy losses ahead of
results from Goldman Sachs <GS.N> and Morgan Stanley <MS.N>
after Merrill Lynch downgraded JPMorgan and forecast a
fourth-quarter loss for the bank.
With the holiday shopping season in full swing, fears about
weak consumer spending dragged on shares of Apple <AAPL.O>.
Goldman Sachs cut its rating on the maker of the iPod and
iPhone and its shares fell nearly 4 percent. For details see
[].
Around 1 p.m. EST (1800 GMT), the Dow Jones industrial
average <> was down 81.72 points, or 0.95 percent, at
8,547.96. The Standard & Poor's 500 Index <.SPX> was down 11.72
points, or 1.33 percent, at 868.01. The Nasdaq Composite Index
<> was down 31.12 points, or 2.02 percent, at 1,509.60.
Banks took the most points off leading indices as a growing
list of financial groups acknowledged exposure to the alleged
$50 billion fraud involving Wall Street trader Bernard Madoff.
The pan-European FTSEurofirst 300 <> index of top
European shares ended down 0.3 percent at 827.25 points.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
15/32 in price to yield 2.52 percent. The 2-year U.S. Treasury
note <US2YT=RR> was unchanged in price to yield 0.75 percent.
The dollar started to respond negatively to concerns about
further weakness in the U.S. economy, analysts said, after the
weak manufacturing data caused an exodus from risky positions
and increased flight-to-quality buying in the currency.
Investors shunned the greenback amid fears a failure of one
or more of the Big Three U.S. automakers could exacerbate a
yearlong recession and drag down other companies.
"The uncertain outlook for the U.S. automakers continues to
keep investors wary of over exposure to the dollar at this
point," said Omer Esiner, senior market analyst at Ruesch
International in Washington.
"We're seeing a naturally weaker dollar as we get into the
year end, so bad news is only exacerbating the need for
investors to just exit their long dollar positions," he said.
The dollar fell against a basket of major currencies, with
the U.S. Dollar Index <.DXY> down 1.68 percent at 82.304.
Against the yen, the dollar <JPY=> fell 0.53 percent at 90.62.
The euro <EUR=> rose 2.10 percent at $1.3653.
Oil briefly topped $50 a barrel before tumbling to almost
$45 a barrel as dealers eyed stock market losses even as OPEC
members agreed on the need to cut output, according to the
group's president, Chakib Khelil, who spoke to reporters in
Oran, Algeria.
Saudi Arabia, the world's biggest exporter, cut its supply
by 8 percent and this had affected the market, he said.
U.S. light sweet crude oil <CLc1> fell $1.03 to $45.25 a
barrel.
Gold rose more than 2 percent in Europe as the dollar
slipped.
Spot gold prices <XAU=> rose $15.30 to $835.75.
Asian stocks climbed 3.4 percent, according to MSCI's index
of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS>, on
renewed hopes the U.S. automaker industry would be rescued.
Japan's Nikkei share average <> rallied 5.2 percent.
(Reporting by Leah Schnurr, Richard Leong, Wanfeng Zhou in New
York, and Joanne Frearson, Ian Chua, Jane Merriman and Jan
Harvey in London; writing by Herbert Lash; Editing by Dan
Grebler)
