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* Stocks stumble after big gain
* Oil slides to five-month lows at Gustav fears ease
* Dollar hits fresh 2008 highs; euro slips to 7-month low
* Precious metals, grains all fall on dollar's strength
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Sept 2 (Reuters) - A plunge in crude prices on
Tuesday to $110 a barrel tempered global inflation fears and
drove the U.S. dollar to its highest level in 10 months, but
American stocks fell after initially posting solid gains.
Oil tumbled initially to a session low of $105.46 a barrel
<CLc1> after early reports showed Hurricane Gustav had spared
the U.S. energy complex along the Gulf Coast. But with other
storms forming in the Atlantic, oil prices pared their losses.
U.S. government bonds rose as crude's steep slide helped
ease inflation worries. Weak economic data also contributed to
the price rise, which drove yields to recent lows.
The euro fell to a seven-month trough against a resurgent
dollar, sliding below $1.45, as oil's slide stoked expectations
of interest rate cuts outside the United States.
Commodities like copper and cotton fell in tandem with oil
after the impact of Gustav's landfall was weaker than expected.
Gold slid under $800 an ounce while copper, another key
commodity indicator, hit 7-month lows in U.S. futures trade.
The Reuters-Jefferies CRB index <.CRB>, a benchmark for
global commodities, slid to 6-1/2 month lows.
U.S. stock indexes fell after the price of oil weighed on
commodity-related companies and as tech shares fell on jitters
a global economic slowdown would crimp technology spending.
Concerns a sharp slowdown in global growth may dent demand
hurt commodity-related companies such as miner Freeport McMoRan
Copper & Gold Inc <FCX.N> and oil supermajors, like Exxon Mobil
Corp <XOM.N>, which led the S&P 500 lower.
Freeport-McMoRan shares fell 7 percent to $83.05, while
Exxon slid 3.4 percent to $77.32.
Fears that tech companies could suffer from slower global
growth resumed after an initial gain. Markets tumbled on Friday
after Dell Inc <DELL.O> warned that companies around the world
are cutting technology spending.
"This theme will continue to be very front and center for a
number of months ahead, because any global slowdown is going to
deliver a direct hit to technology spending," said Peter Kenny,
managing director at Knight Equity Markets in Jersey City, New
Jersey.
Apple <AAPL.O> fell 2 percent to $166.19, while Research In
Motion <RIM.TO> <RIMM.O> dropped 2.7 percent to $118.35. Dell's
shares fell 4.1 percent to $20.83.
Among sectors that could be helped by falling fuel costs,
the airline index <.XAL> rose 6.6 percent and the S&P retail
index <.RLX> up 3 percent.
The Dow Jones industrial average <> closed down 26.63
points, or 0.23 percent, at 11,516.92. The Standard & Poor's
500 Index <.SPX> fell 5.27 points, or 0.41 percent, at
1,277.56. The Nasdaq Composite Index <> slipped 18.28
points, or 0.77 percent, at 2,349.24.
In Europe, banking shares rallied. BNP Paribas <BNPP.PA>
rose more than 4 percent, Credit Agricole <CAGR.PA> was up
nearly 4 percent, Dexia <DEXI.BR> advanced 3.6 percent and
Fortis <FOR.BR> gained 4 percent.
But lower crude prices pressured energy stocks. BP <BP.L>,
Royal Dutch Shell <RDSa.L>, gas producer BG Group <BG.L> and
Tullow Oil <TLW.L> shed between 1.8 and 5.1 percent.
The FTSEurofirst 300 <> index of top European shares
closed 0.91 percent higher at 1,200.20 points, but is still
down 20 percent so far this year.
The dollar pared gains against the euro after data showed
U.S. factory activity unexpectedly shrank slightly in August.
The Institute for Supply Management said its index of U.S.
national factory activity edged lower to 49.9 in August from 50
in July. Economists had expected an unchanged reading of 50.
Combined with an increasingly bleak UK economic outlook,
the dollar's broad strength pushed sterling further below $1.78
to its lowest since April 2006.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.63 percent. Against the yen, the
dollar <JPY=> fell 0.63 percent at 108.72.
The euro <EUR=> fell 0.66 percent at $1.4507.
Crude slid to five-months lows before paring some losses.
U.S. crude <CLc1> settled down $5.75 at $109.71 a barrel.
London Brent crude <LCOc1> settled down $1.07 at $108.34.
U.S. crude settled below its 200-day moving average price
for the first time since May 2007, considered a sign prices may
fall further. Oil prices have tumbled nearly $40 a barrel since
the July 11 record high of $147.27 as bullish sentiment has
evaporated.
"It would take a really major storm to change the direction
in crude oil in the midst of its major correction since July,
and Gustav is not it," said Chris Jarvis, senior analyst at
Caprock Risk Management in Hampton Falls, New Hampshire."
Gold and other precious metals ended with steep losses,
falling earlier with crude prices as Hurricane Gustav weakened
without causing major damage to oil facilities, traders said.
Precious metals repaired some of the sharp declines by
closing, as the dollar came off its earlier 2008 highs against
major currencies, dealers said.
Gold December futures <GCZ8> finished $24.70 lower at
$810.50 an ounce in New York.
A steep fall in costs for U.S. manufacturers surprised some
investors and helped bolster bond prices.
U.S. Treasury debt prices rose on Tuesday, taking benchmark
yields to the lowest in over three months, on easing inflation
concerns after a drop in oil and a report showing a plunge in
prices paid by U.S. manufacturers.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
22/32 to yield 3.74 percent. The 30-year U.S. Treasury
bond<US30YT=RR> added 38/32 to yield 4.36 percent.
Asian stocks fell to a 2-year low, led by sharp losses in
Japan, where confusion reigned about the country's leadership.
Japan's Nikkei share average <> ended down 1.8 percent
at a 5-month low, as investors grappled with the implications
of the resignation of Prime Minister Yasuo Fukuda, the second
Japanese leader to resign in less than a year.
An index of Asia-Pacific equities outside Japan
<.MIAPJ0000PUS> slid 0.6 percent to an 18-month low.
(Reporting by Ellis Mnyandu, Wanfeng Zhou, Lucia Mutikani,
John Parry in New York and Atul Prakash, Jane Merriman, George
Matlock and David Sheppard in London
(Writing by Herbert Lash. Editing by Richard Satran)
