* Initial enthusiasm over Chinese stimulus plan wanes
* Dollar falls versus euro after China unveils plans
* Treasuries prices rise as stocks erase most early gains
* Oil falls as economic concerns offset Saudi supply move
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Nov 10 (Reuters) - Initial euphoria over China's
nearly $600 billion stimulus plans faded on Monday, leaving
U.S. stocks at the mercy of new signs of corporate distress
which highlighted the economy's weak state.
Stock markets in Asia and Europe rose after China on Sunday
reported it had approved a government spending package and said
it would adopt a "moderately easy" monetary policy.
However, investors soon sought safety, lifting the price of
government debt and pushing U.S. stocks mostly lower, as a
further assessment of China's plans and dismal corporate news
led investors to think the bigger picture remains bearish.
The cost of rescuing American International Group Inc
<AIG.N> jumped to $150 billion after a smaller bailout failed
to stabilize the ailing insurance giant, and shares of General
Motors Corp <GM.N> plunged to 62-year on analysts downgrades.
AIG reported a record $24.47 billion third-quarter loss,
while Fannie Mae, the largest source of funding for U.S. homes,
reported a record $29 billion loss and said it is losing money
so fast it may have to tap the government for additional cash
to avoid shutting down.
"While the China stimulus could be perceived as positive
for the market, it is really a double-edged sword," said
strategist Peter Dixon of Commerzbank.
"If it works, then it could mean China's economy could grow
fairly rapidly. But, what it also means is that the economy has
been weaker than anticipated prior to this event," he said.
In other dire news, electronics retailer Circuit City
Stores Inc <CC.N> filed for bankruptcy just weeks before the
start of the key holiday shopping season, the largest U.S.
retailer to seek court protection from creditors since 2002.
And in a sobering forecast, chief economist Jan Hatzius of
Goldman Sachs said worldwide losses from the credit crisis will
total $1.4 trillion, of which only $800 billion have been
realized so far.
Gold surrendered some of its gains and the safe-haven yen
regained some strength versus the U.S. dollar on concerns
China's stimulus plan may not be sufficient to avert a global
recession.
"There has been some renewed hope that since China is a key
driver of global growth, that might lead to some recovery in
market sentiment," said Samarjit Shankar, director for global
strategy at The Bank of New York Mellon in Boston.
"(But) it remains to be seen how much is followed through,
which sectors get the additional spending and most importantly,
whether that translates into improved quarterly growth," he
added. "The jury is still out."
Key equity sectors, including energy and big manufacturers,
quickly gave up earlier gains that had pushed the major U.S.
indexes up 2 percent in early trade.
GM shares plunged more than 22 percent, dragging the stock
of rival automaker Ford <F.N> down 4.5 percent. Both companies
on Friday posted wider-than-expected quarterly losses.
Before 1 p.m., the Dow Jones industrial average <> was
down 97.72 points, or 1.09 percent, at 8,846.09. The Standard &
Poor's 500 Index <.SPX> was down 15.18 points, or 1.63 percent,
at 915.81. The Nasdaq Composite Index <> was down 30.68
points, or 1.86 percent, at 1,616.72.
The FTSEurofirst 300 <> index of top European shares
trimmed gains to close up 0.9 percent at 922.48 points.
Analyst said European stocks have rebounded from oversold
levels over the past few weeks. It was the eighth day of gains
in the last 10 for the pan-European benchmark.
Commodity stocks were the biggest movers in Europe, led
higher by BG Group <BG.L>, BP <BP.L>, and Total <TOTF.PA> among
the oil shares.
Among miners, Anglo American <AAL.L>, BHP Billiton <BLT.L>,
Rio Tinto <RIO.L> and Xstrata <XTA.L> rose between 8.6 percent
and 11.6 percent higher.
The price of copper <MCU3=LX> in London shot up 8.3 percent
on news of China's spending plan.
"Although there are questions on whether the stimulus plan
will help the overall economy, commodities were up primarily
because of the China effect," Dixon said.
U.S. Treasury debt prices reversed early losses and rose
when stocks turned lower, reviving investors' taste for
safe-haven U.S. government debt.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
7/32 in price to yield 3.77 percent, while the 2-year U.S.
Treasury note <US2YT=RR> rose 4/32 in price to yield 1.27
percent.
The dollar fell against a basket of major currencies, with
the U.S. Dollar Index <.DXY> off 0.04 percent at 85.87. Against
the yen, the dollar <JPY=> fell 0.55 percent at 97.73.
The euro <EUR=> rose 0.23 percent at $1.2765.
Oil prices dipped as concerns about the mounting global
economic crisis offset Saudi Arabia's move to cut supplies and
China's stimulus plan.
U.S. light sweet crude oil <CLc1> fell 68 cents to $60.36 a
barrel.
Spot gold prices <XAU=> rose $6.55 to $742.50 an ounce.
Japan's Nikkei share average <> rose 5.8 percent after
China's announcement, while the MSCI index of Asia-Pacific
stocks outside of Japan <.MIAPJ0000PUS> 2.5 percent.
(Reporting by Ellis Mnyandu, Ellen Freilich and Wanfeng Zhou
in New York and Alex Lawler, Jan Harvey and Jamie McGeever in
London; writing by Herbert Lash; Editing by Tom Hals)
