* Initial enthusiasm over Chinese stimulus plan wanes
* Dollar little changed vs euro after China unveils plan
* Treasuries prices rise as stocks erase most early gains
* Oil trims gains; Saudi supply move weighs on China plans
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Nov 10 (Reuters) - U.S. stocks fell and risk
aversion returned on Monday after the initial euphoria over
China's nearly $600 billion stimulus plans faded and news of
corporate distress kept investors focused on economic worries.
A jump in the cost of rescuing American International Group
Inc <AIG.N> to $150 billion after a smaller bailout failed, a
record quarterly loss at Fannie Mae and a plunge in General
Motors' shares to 62-year lows cast a pall over markets.
Oil trimmed gains of more than 7 percent to settle up 2
percent as Saudi Arabia's move to cut supplies and China's
stimulus plans aided crude prices and market volatility.
U.S. stocks initially rose following gains in Europe and
Asia after China approved a $586 billion government spending
package on Sunday and said it would adopt a "moderately easy"
monetary policy. But the euphoria fizzled as investors doubted
the steps would be enough to avert a steep global downturn.
"China's stimulus won't work instantaneously and we're
already in a global recession," said Phil Orlando, chief equity
market strategist at Federated Investors in New York.
Strategist Peter Dixon of Commerzbank called China's plans
a double-edged sword because it would help spur growth while
highlighting the tough state of the global economy.
"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," Dixon said.
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 seek more government funds to avoid shutting.
In other dire news, electronics retailer Circuit City
Stores Inc <CC.N> filed for bankruptcy in 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.
The financial sector led U.S. stocks lower after Barclays
analysts said they expected Goldman Sachs to post a quarterly
loss for the first time in the company's history due to steep
equity market declines.
McDonald's Corp <MCD.N> helped the Dow fare better than the
S&P 500 and Nasdaq. The world's largest hamburger chain said
global sales at its fast-food restaurants open at least 13
months rose 8.2 percent in October, topping analysts' targets.
McDonald's shares rose 1.8 percent and GM shares plunged
almost 23 percent to $3.36.
Another big Dow gainer was Alcoa, whose shares jumped more
than 5 percent on a rise in metal prices.
The Dow Jones industrial average <> closed down 73.27
points, or 0.82 percent, at 8,870.54. The Standard & Poor's 500
Index <.SPX> fell 11.77 points, or 1.26 percent, at 919.22. The
Nasdaq Composite Index <> slipped 30.66 points, or 1.86
percent, at 1,616.74.
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.
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."
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> rose
10/32 in price to yield 3.76 percent. The 2-year U.S. Treasury
note <US2YT=RR> added 3/32 in price to yield 1.27 percent.
The dollar rose against a basket of major currencies in
late trading in a bid for safety. The U.S. Dollar Index <.DXY>
gained 0.13 percent to 86.02.
The euro <EUR=> rose 0.02 percent to $1.2738 from a
previous session close of $1.2736. Against the yen, the dollar
<JPY=> fell 0.45 percent to 97.83.
U.S. crude <CLc1> settled up $1.37 at $62.41 a barrel,
while London Brent crude <LCOc1> gained $1.73 to settle at
$59.08.
Gold rose, with the December futures contract <GCZ8>
settling up $12.30 at $746.50 in New York.
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 Chizu Nomiyama)
