(Adds U.S. market close)
By Herbert Lash
NEW YORK, Feb 28 (Reuters) - European equities and U.S.
equities declined and treasuries prices climbed as the dollar
dropped to a new low against the euro on Thursday amid fresh
signs of a possible U.S. recession.
Oil, which benefits from the weak dollar, jumped to another
new high over $100, while gold continued its climb to record
levels near $1,000 an ounce.
U.S. Treasury prices rose as investors scrambled for safety
on fears that the worst has yet to arrive in the battered U.S.
housing sector and on economic weakness that was highlighted in
a fourth-quarter update on gross domestic product.
Investors were unnerved by reports that the U.S. economy
barely expanded, with growth at just 0.6 percent, and that the
number of workers filing claims for jobless aid jumped last
week.
A second day of testimony by Federal Reserve Chairman Ben
Bernanke in the Senate did little to help sentiment.
A safety-first focus set in early among investors after
Freddie Mac, the second-largest U.S. provider of mortgages,
posted a wider-than-expected quarterly loss of $2.5 billion
before the bell trade opened on Wall Street.
Credit risk worries were fanned after Bernanke said that
some small banks may go under as the housing slump takes its
toll, although the U.S. banking system overall remained solid.
He added that the U.S. central bank is in a more difficult
position now to respond to a slowing economy than it was during
the last U.S. economic slowdown in 2001 following the bursting
of the stock market bubble.
Bernanke's comments accelerated a fall in European and U.S.
shares, with the major European stock indices closed down
almost 2 percent and major U.S. indices were down more than 1
percent at midday. U.S. government debt surged.
The Dow Jones industrial average <> fell 119.99 points,
or 0.95 percent, at 12,574.29, at the unofficial close.
A slide in financials led European shares lower with the
stock of UBS <UBSN.VX>, Europe's biggest subprime casualty,
falling 4.9 percent after Morgan Stanley warned the Swiss bank
may book additional writedowns due to deteriorating credit
markets.
"European equities are vulnerable to a slowdown in the
(United) States spreading to Europe, exacerbated by the euro's
strength, and on a currency-adjusted basis, they don't look
massively attractive," said Andrew Bell, a strategist at
Rensburg Sheppards Investment Management.
The FTSEurofirst 300 <> index of top European shares
closed 1.8 percent lower at 1,333.42 points, leaving it off
11.5 percent in 2008.
Earlier in Asia, Japan's Nikkei <> lost 0.8 percent,
while MSCI's measure of other Asian stock markets
<.MIAPJ0000PUS> edged 0.2 percent lower.
MSCI's main world equity index <.MIWD00000PUS> slipped 0.7
percent.
Bond prices jumped in the flight to safety and on the weak
economic data. The benchmark 10-year U.S. Treasury note
<US10YT=RR> was up 42/32, with the yield at 3.6868 percent.
"There's ongoing flight to safety in Treasuries because of
credit risk. Equities look softer and we've got discouraging
earnings reports from companies like Freddie Mac," said Kim
Rupert, managing director of global fixed income analysis with
Action Economics in San Francisco.
Cash moved into commodities again, as gold and oil set new
records highs.
Investors have pumped cash into commodities in recent
weeks, betting the Fed will keep cutting interest rates to prop
up the flagging U.S. economy.
U.S. crude oil futures surged more than 3 percent to a
record $102.70 and settled at $102.59, up $2.95 from the
previous close.
Speculative buying on a weak dollar, ongoing supply
concerns and a fire at a natural gas terminal in the United
Kingdom pushed oil priced higher.
"Speculators own this market, and they are pushing it up as
they see fit," said Stephen Schork, editor of the Schork
Report.
The euro rose above $1.52 for the first time in its
nine-year history as investors bet U.S. interest rates are set
to fall further as Europe's benchmark rate stays unchanged.
The euro <EUR=> was up 0.61 percent at $1.5213 from a
previous session close of $1.5121.
Gold raced to a historic high above $969 an ounce as the
dollar's slump and strong oil prices boosted buying. Spot gold
prices <XAU=> rose $11.10, or 1.16 percent, to $968.90. The
Reuters/Jefferies CRB Index <.CRB> was up 8.16 points, or 2.01
percent, at 413.60.
"It's clearly the oil, clearly the weaker dollar, and
people just want to have hard assets. I think people are very
concerned. The economic news coming out of the United States is
just bad," said Bruce Dunn, vice president of trading at
Auramet Trading in Fort Lee, New Jersey.
