* World stocks drop on global recovery concerns
* Sterling slips after Britain's GDP shrank unexpectedly
* Commodities fall on fears of economic tightening in Asia
(Updates with European markets' close)
By Manuela Badawy
NEW YORK, Jan 25 (Reuters) - World stocks fell on Tuesday
after Britain's economy unexpectedly contracted at the end of
2010 and the euro retreated from a two-month high.
Fears of inflation in Asia undermined confidence in the
global recovery, weighing on global stock indexes and
commodity prices.
The euro was flat, pulling back from a two-month high in
volatile trading, after the euro zone rescue fund's first debt
offer.
European shares fell after data showed a 0.5 percent
decline in UK gross domestic product in the fourth quarter as
Britain's government embarks on deep spending cuts. For
details, see []
Commodity prices plunged on worries of a slowdown from
Asia's biggest consumer countries. U.S. crude oil futures
<CLc1> fell 1.2 percent to $86.70 a barrel, copper hit
one-month lows and gold fell to its lowest in three months
after India raised interest rates, saying inflation may stay
high for longer than expected. []
U.S. Treasury debt prices rose in anticipation of the
Federal Reserve's purchases of notes maturing from January
2015 to June 2016 amid a two-day Fed meeting that offered a
constructive backdrop.
A U.S. industry group said its index of consumer attitudes
jumped in January to the highest since May 2010, but did
little to ameliorate investors' confidence. []
"There is a risk-reduction trade sparked by the
weaker-than-expected GDP report in the UK," said John Brady,
MF Global's senior vice president for U.S. and global
interest-rate products.
"We also saw a continued fluid situation in Irish
electoral politics, and concerns about the capitalization of
Spanish banks, middle-tier banks, those combined have lent to
modest risk reduction."
European shares fell as confidence in Britain was shaken
by the unexpected drop in the UK's fourth-quarter GDP growth
figures and with Spanish banks' shares down on concerns that
new capital requirement rules may not be tough enough.
The pan-European FTSEurofirst 300 index <> of top
shares fell 0.6 percent to close at 1,144.14 points, with
Britain's FTSE 100 <> down 0.4 percent.
Banco Santander <SAN.MC> and BBVA <BBVA.MC> fell 3.5
percent and 3.3 percent, respectively, lagging the sector,
after Spanish banks were told to increase core capital ratios
to at least 8 percent by September or risk a partial takeover
by the state, as some fear it is not enough to build
confidence in the sector.
U.S. stocks fell, weighed down by disappointing blue-chip
earnings.
The Dow Jones industrial average <> was down 26.72
points, or 0.22 percent, at 11,953.80, off a fresh 52-week
high of 11,985.97. The Standard & Poor's 500 Index <.SPX> was
down 3.59 points, or 0.28 percent, at 1,287.25. The Nasdaq
Composite Index <> was down 6.01 points, or 0.22 percent,
at 2,711.54.
The euro wallowed between positive and negative territory
against the dollar, but ultimately fell from a two-month high
after the euro zone rescue fund's first debt offer was
oversubscribed and prompted selling.
The euro <EUR=> was up 0.03 percent at $1.3647. Against
the Japanese yen, the dollar <JPY=> was down 0.11 percent at
82.38 from a previous session close of 82.470.
The dollar index <.DXY>, which measures the dollar's
performance against a basket of major currencies, edged up
0.06 percent. Sterling <GBP=> slid 1.14 percent to $1.5808 per
pound.
World stocks as measured by MSCI <.MIWD00000PUS> fell 0.28
percent. Tokyo's Nikkei average <> had climbed 1.2
percent to close at 10,464.42 on hopes of upbeat company
earnings.
The European Financial Stability Facility, the 440 billion
euro fund being used to bail out Ireland, launched its debut
bond issue, with demand dwarfing the 5 billion euros on
offer.
A source at the EFSF said it closed the order book with
demand at 43 billion euros, a sign of confidence in the
facility. []
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
up 8/32, with the yield at 3.379 percent. The 2-year U.S.
Treasury note <US2YT=RR> was unchanged with the yield at 0.626
percent. The 30-year U.S. Treasury bond <US30YT=RR> was up
14/32, with the yield at 4.535 percent.
The International Monetary Fund revised its world growth
forecast higher and said a package of U.S. tax cuts should
give a lift to the global economy. []
The Reuters/Jefferies CRB Index <.CRB>, a global benchmark
for commodities, was down 1.42 percent on worries of economic
tightening in Asia.
Spot gold prices <XAU=> fell $2.20, or 0.16 percent, to
$1,332.10 an ounce. Copper <CMCU3>, which is used in power and
construction, hit a one-month low -- falling 2.77 percent to
$9,265 a tonne, while tin hit a record high on supply
concerns.
(Reporting by Manuela Badawy; Additional reporting by Ryan
Vlastelica, Barani Krishan, Ellen Freilich and Dominic Lau,
Joanne Frearson in London; Editing by Jan Paschal)
