* Global stocks stumble on weak U.S. manufacturing data
* Dollar slides across board, hits 2-month low vs euro
* Government debt rises as data sparks deflation fears
* Oil drops on economic worries despite looming OPEC cuts
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Dec 15 (Reuters) - The dollar weakened and
government debt prices rose on either side of the Atlantic on
Monday after New York state manufacturing data pointed to
tumbling demand, helping to push equity markets lower.
Oil slid almost 4 percent as the deepening economic fears
overcame expectations 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 prices.
The euro rose more than 2 percent to a two-month high
above $1.37 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 manufacturing data for December provided
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."
The worsening economy led investors to pile into cash and
other safe-haven assets, pushing the yield on the 30-year U.S.
Treasury bond below 3 percent for the first time in 50 years.
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 7.5 percent
slide in JPMorgan <JPM.N> led the Dow lower while BNP Paribas
<BNPP.PA> lost 10 percent and led shares lower in Europe.
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 3.6 percent.
The Dow Jones industrial average <> slid 65.15 points,
or 0.75 percent, to 8,564.53. The Standard & Poor's 500 Index
<.SPX> fell 11.16 points, or 1.27 percent, to 868.57. The
Nasdaq Composite Index <> shed 32.38 points, or 2.10
percent, to 1,508.34.
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 and
investment manager Bernard Madoff.
The pan-European FTSEurofirst 300 <> index of top
European shares ended down 0.3 percent at 827.25.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
17/32 in price to yield 2.51 percent, while the 2-year U.S.
Treasury note <US2YT=RR> was flat to yield 0.75 percent.
The 30-year bond <US30YT=RR> jumped 63/32, or 1-31/32 in
price, while its yield slid 2.96 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.
Investors shunned the greenback amid fears a failure of
one or more of the Big Three U.S. automakers could exacerbate
a year-long recession and drag down other companies.
"The dollar is selling off aggressively going into the
rate decision as traders realize that after tomorrow, the
dollar will either be the lowest- or second-lowest yielding
G10 currency," said Kathy Lien, director of currency research
at GFT Forex in New York.
The euro <EUR=> jumped 2.39 percent to $1.3691.
The dollar fell against a basket of major currencies, with
the U.S. Dollar Index <.DXY> down 2.03 percent at 82.011.
Against the yen, the dollar <JPY=> fell 0.30 percent to
90.83.
Oil briefly topped $50 a barrel before tumbling to settle
under $45 a barrel as dealers eyed stock market losses even as
OPEC members agreed on the need to cut output, according to
the cartel'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. crude <CLc1> fell $1.77 to settle at $44.51 a barrel,
off a session high of $50.05. London Brent crude <LCOc1>
settled down $1.81 at $44.60 a barrel.
Gold futures rallied to a two-month high above $840 an
ounce as the dollar slumped and an expected Fed rate cut
prompted investors to pour funds into the bullion market.
The February gold contract <GCG9> jumped $16 to settle at
$836.50 an ounce in New York.
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 and
Matthew Robinson in New York, and Joanne Frearson, Ian Chua,
Jane Merriman and Jan Harvey in London; writing by Herbert
Lash; Editing by Jan Paschal)
