(Adds opening of U.S. markets, byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, March 19 (Reuters) - Nagging concerns about the
health of the U.S. economy pushed investors into safe-haven
debt on Wednesday and cut demand for the U.S. dollar, oil and
gold.
Global stocks fell, even as some financial stocks that have
been in the eye of a credit crisis rose, amid a renewed bid to
shore up the faltering U.S. mortgage market and despite
better-than-expected results from another Wall Street bank.
Crude oil prices fell more than $6 a barrel on concerns
that a widening U.S.-led economic slowdown could further
undermine global demand for energy, and gold futures lost
nearly 6.0 percent in their biggest one-day percentage drop in
nearly two years.
Investors booked profits from stocks and commodities after
Tuesday saw a jump of more than 4.0 percent in major U.S.
indices, the biggest one day rise in five years, in the wake of
the Federal Reserve's move to cut it's overnight lending rate
again.
Steep losses in crude oil prices on Wednesday came during a
volatile week in commodity and equity markets as investors
weighed signs of a U.S. recession against the Fed's aggressive
efforts to counter both an economic slowdown and a global
meltdown in credit markets.
"People are looking at the macro picture and are worried
about the economy," said Mike Fitzpatrick, vice president at MF
Global in New York. "The wide swings in prices during the past
few days point to uncertainty both for bulls and bears."
The slump in crude oil temporarily assuaged bond investors'
jitters about inflation and helped spur longer-maturity U.S.
government debt prices and shorter-term paper viewed as
"risk-free."
The dive into cash and cash equivalents was so strong the
yield on the three-month U.S. T-bill yield <US3MT=RR> fell to
50-year lows of 0.56 percent on Wednesday.
"It is the absolute flight to safety," said Bryan Taylor,
chief economist with Global Financial Data in Los Angeles.
"People are just scared that non-government debt is risky."
Taylor's data shows the three-month yield, considered a
benchmark for "risk-free" returns, has not been this low since
1947.
Market sentiment on the U.S. dollar remained decidedly
negative because U.S. interest rates are expected to head lower
even after the Fed slashed rates by three-quarters of a
percentage point to 2.25 percent on Tuesday.
Stocks rallied earlier 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 enable them to pump as much
as $200 billion 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.
But declines in the energy sector offset that news as the
major U.S. stock indexes fell about 2.0 percent.
Exxon Mobil <XOM.N> was the biggest laggard on the
benchmark Standard & Poor's 500 Index <.SPX>, falling 4.53
percent to $84.46. Rivals ConocoPhillips <COP.N> slid
5.95percent to $73.61 and Chevron <CVX.N> fell 4.91 percent to
$81.89.
The Standard & Poor's index of materials stocks <.GSPM>
fell 6.28 percent as persistent worries about a recession and
the health of the U.S. economy weighed on commodity prices.
"The bottom line is the recession is something that
everyone is now accepting as a reality even though we've seen
great news out of Fannie and Freddie this morning," said Peter
Kenny, managing director at Knight Equity Markets in Jersey
City, New Jersey.
The Dow Jones Industrial Average fell 2.38 percent or
294.79 points to 12,097.87, its biggest one day drop in nearly
three weeks. The benchmark S&P500 index <.SPX> fell 2.42
percent or 32.16 points to 1,298.58.
Crude prices fell 4.5 percent. U.S. crude <CLc1> settled
down $4.94 to $104.48 a barrel, down from a record $111.80 on
Monday. London Brent crude <LCOc1> fell $4.84 to $100.72.
Gold fell to three-week lows amid a heavy liquidation of
assets held by funds, which helped the dollar briefly reverses
losses against the euro.
"There has been a large unwinding of commodities in gold,"
said said a London trader. "Hedge funds have been unwinding
good profit-making positions, including long euros," he said.
The active U.S. gold contract for April delivery <GCJ8> in
New York settled $59.00, or 5.9 percent, to $945.30, its
biggest drop in a single day since June 2006.
The drop in gold came amid a full-scale pullback of all
commodities. The Reuters Jefferies CRB Index <.CRB> slid 4.0
percent, led by gold and crude oil futures <CLc1>.
Other precious metals that have posted big gains this year
also sank on gold's decline. Silver plummeted 7.9 percent,
platinum dropped 4 percent and palladium fell 5.3 percent.
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.
European stocks also 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.
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.
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.
