By Natsuko Waki
LONDON, March 3 (Reuters) - World stocks tumbled while the
dollar plumbed record lows on Monday as fresh concerns about the
health of the banking sector and a U.S. recession drove
investors to safe-haven gold and government bonds.
Emerging markets took a beating as investors dumped risky
assets, while the cost of corporate bond insurance rose after
last week's weak U.S. confidence data and a regional business
survey intensified worries about the world's biggest economy.
HSBC <HSBA.L> announced bigger-than-expected bad debts of
$17.2 billion due to problems in the U.S. housing market. The
global banking sector is expected to suffer a total of $300-400
billion writedowns from the credit crunch, threatening to derail
growth in the broader economy.
"There are a lot of unanswered questions about banks'
balance sheets," said Thierry Lacraz, strategist at Swiss bank
Pictet. "Estimates show a lot of shareholder equity is having to
be written down, which will make banks shy to lend this year."
The FTSEurofirst 300 index <> was down 1.7 percent on
the day while MSCI main world equity index <.MIWD00000PUS> fell
1.3 percent to hit a one-week low.
HSBC shares fell more than 1 percent before turning
positive, while the broader bank sector index <.SX7P> was down
1.8 percent on the day in Europe, dragging down broader indices
along with technology and insurer shares.
The dollar fell to all-time lows against a basket of major
currencies <.DXY> as recession fears cemented expectations for
U.S. interest rate cuts with investors pricing in a more than 70
percent chance of a three-quarter point rate cut in March.
The dollar also hit a three-year low against the
low-yielding yen of 102.62 yen <JPY=>, with export-damaging yen
strength weighing on Japanese shares <>.
GROWTH/INFLATION TRADEOFF
Expectations that the Federal Reserve and other central
banks would cut interest rates to spur the ailing economies have
kept world stocks off January's 15-month low, although recent
data showing rising inflationary pressures might discourage
monetary authorities from easing dramatically.
"We are seeing the deepest housing deflation since the Great
Depression and a massive unwind of the largest credit binge
ever, and fiscal and monetary policies are more limited in their
ability to respond than earlier this decade. Not good news for
the economy or the equity market," David Rosenberg, North
American economist at Merrill Lynch, said in a note.
Central banks in the euro zone and Britain are expected to
leave interest rates on hold this week. The Bank of England is
forecast to cut interest rates again in May, while interest rate
futures are pricing in an around 70 percent chance of a euro
zone rate cut by June, up from 20 percent last week.
The iTraxx Crossover index <ITCRS5EA=GFI>, the most-widely
watched indicator for European credit market sentiment, widened
to 600 basis points.
Emerging sovereign spreads <11EMJ> hit 291 basis points over
U.S. Treasuries, their widest in five weeks. Emerging stocks
<.MSCIEF> fell 2.4 percent.
The March Bund future <FGBLH8> was up 33 ticks.
U.S. light crude <CLc1> was steady at $101.81 a barrel,
below last week's record highs.
Gold <XAU=> -- seen as an inflation hedge and safe-haven
asset -- rose as high as $983.90 an ounce while silver <XAG=>
rose to $20 an ounce for the first time since November 1980.
(Additional reporting by Sitaraman Shankar, editing by Mike
Peacock)
