(Adds opening of U.S. markets, byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, March 19 (Reuters) - Persistent worries about a
U.S. recession and the health of the economy drove investors
into the safety of government debt on Wednesday and helped pull
down the dollar and commodities prices.
Global stocks sagged even as financial shares rose after
better-than-expected results from yet another Wall Street bank
and a renewed effort to shore up the flagging U.S. housing
sector.
In Europe, shares were stung after a profit warning by Sony
Ericsson and Deutsche Telekom's <DTEGn.DE> outlook disappointed
markets, while mining stocks fell.
Oil prices slumped almost 5 percent amid signs of falling
demand and concerns about a U.S.-led recession, which
temporarily assuaged bond investors' jitters about inflation
and helped longer-maturity U.S. government debt.
U.S. gold futures plunged 5 percent to a three-week low,
pummeled by full-scale fund liquidation and the Federal
Reserve's smaller-than-expected interest rate cut on Tuesday,
which weighed heavily on the dollar.
Market sentiment on the greenback remained decidedly
negative as U.S. interest rates are expected to head lower even
after a three-quarters of a percentage point cut by the Federal
Reserve to 2.25 percent.
"It's still a very dollar-negative environment as the Fed
is expected to cut to about 1.50 percent by mid-year and this
leaves the larger dollar sell-off trend still in place," said
David Powell, a currency strategist, at IDEAglobal in New
York.
The Dow Jones industrial average <> was down 57.07
points, or 0.46 percent, at 12,335.59. The Standard & Poor's
500 Index <.SPX> was down 4.87 points, or 0.37 percent, at
1,325.87. The Nasdaq Composite Index <> was down 12.42
points, or 0.55 percent, at 2,255.84.
FINANCE SHARES UP, BUT OIL WEIGHS
Stocks rallied earlier in the day on unexpectedly strong
earnings from Morgan Stanley <MS.N> and after the regulator of
top U.S. home finance companies Fannie Mae <FNM.N> and Freddie
Mac <FRE.N> eased their capital requirements to pump as much as
$200 billion in immediate cash into the stressed mortgage
markets.
The Office of Federal Housing Enterprise Oversight said it
was reducing to 20 percent from 30 percent the amount of extra
capital Fannie and Freddie are required to hold.
The encouraging news was offset by declines in the energy
sector.
Oil prices <CLc1> dropped close to $5 a barrel, weighing on
shares of major energy companies, including Exxon Mobile
<XOM.N> and Chevron Corp <CVX.N>.
"These moves that we see in the aftermath of the FOMC
statement, the Fannie and Freddie news are really temporary and
pullbacks do not imply a sustained dollar rebound," Powell
said.
European stocks stumbled as a sell-off in British bank
shares wiped early gains inspired by the U.S. Fed's interest
rate cut on Tuesday, as a credit crunch weighed on investors.
Britain's largest mortgage lender, HBOS <HBOS.L> fell as
much 17 percent before paring losses to close down 7.1 percent.
HBOS affirmed the strength of its balance sheet after talk of
more problems in the UK bank sector hit shares.
Societe Generale <SOGN.PA> lost 7.1 percent and Royal Bank
of Scotland <RBS.L> lost 2.91 percent.
The U.S. crude contract for April delivery <CLc1>, which
expires later on Wednesday, fell by $4.82 to $104.60 a barrel.
The more actively traded May contract was trading at
$103.36, down $5.14 from the previous close, while London Brent
crude for May delivery <LCOc1> fell $4.49 to $101.07.
TREASURIES RISE, GOLD FALLS
Treasuries were held back briefly on the Fannie and Freddie
news, which was initially seen likely to buoy the
mortgage-backed securities market and draw more investors out
of the safe haven of Treasuries into non-government
fixed-income securities.
But in a second-wave reaction, bond investors bought
long-dated Treasuries as an alternative to long-dated debt from
the two mortgage agencies, on expectations that Fannie Mae and
Freddie Mac may have to issue more debt.
A sell-off on commodity markets could also be raising
tentative hopes inflation pressures may ease, which might help
long maturity Treasury bonds, analysts said.
Gold fell as a rise in the euro against the dollar stirred
fears that central banks might intervene in the currency
markets to boost the dollar's strength, which could dampen
gold's appeal.
The active U.S. gold contract for April delivery in New
York sank $45.30, or 4.5 percent, to $959.00,
Earlier in Asia, stocks surged on the Fed's rate cut and
the surprisingly resilient results from Wall Street banks sent
exporters higher and revived moribund financial shares.
Japan's benchmark Nikkei average <> ended up 2.5
percent at 12,260.44, rising for a second straight day after
hitting a 2-1/2-year low of 11,787.51 on Monday.
The Nikkei rose as investors snapped up exporters such as
Toyota Motor Corp <7203.T>, which makes 30 percent of car sales
in the United States. Toyota gained 3.9 percent.
In Hong Kong the benchmark Hang Seng Index <> closed up
2.3 percent.
The MSCI's measure of Asian stocks outside Japan
<.MIAPJ0000PUS> rose 2.51 percent. The MSCI main world equity
index <.MIWD00000PUS> was down 0.34 percent.
(Editing by Leslie Adler)
