* Global stocks tank as credit, economic jitters bite
* U.S. dollar reverses gains as stocks fall, oil rises
* Oil spikes on weak dollar after falling to below $112
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Aug 19 (Reuters) - Global stocks fell sharply and
oil prices shot higher from dollar weakness on Tuesday as
credit concerns again rattled investors and a spike in U.S.
wholesale prices reignited concerns about future inflation.
Crude oil, which had traded earlier in the day below $112 a
barrel, surged to around $116 after the dollar slipped and
traders squared positions by selling before contracts expire
Wednesday.
The dollar initially gained on the view that the Federal
Reserve will be forced to raise interest rates to curb the pace
of inflation. A government report showed U.S. producer prices
jumped at the fastest rate in 27 years in July.
But traders took advantage of the steep slide in stocks to
book profits on the dollar's recent gains. The euro was on pace
to post its best one-day gain in a month, while a dollar index
was on track for its worst daily loss in about five weeks.
U.S. Treasury and euro zone debt prices also initially
gained in safe-haven buying, taking their cue from stocks.
European shares dropped in a broad sell-off to their lowest
close in two weeks on renewed credit fears and U.S. data that
showed U.S. economic woes are far from over.
The threat of sharply higher inflation and renewed worries
that the two leading U.S. mortgage finance companies could face
steep losses weighed heavily on Wall Street.
Data pointing to the slowest pace of housing starts in more
than 17 years highlighted the deterioration in U.S. housing.
A forecast by JPMorgan Securities that investment bank
Lehman Brothers <LEH.N> will likely take a further $4 billion
of write-downs in the third quarter due to losses from
mortgage-related investments also fanned investor gloom.
Lehman shares fell more than 10 percent as the S&P
financial index <.GSPF> declined 3.5 percent.
"We are back to struggling again in the financial sector
particularly," said William Stone, chief investment strategist
at PNC Financial in Philadelphia. "Underneath some of that is
just concern about the overall global economic slowdown."
Before 1 p.m., the Dow Jones industrial average <> was
down 116.51 points, or 1.01 percent, at 11,362.88. The Standard
& Poor's 500 Index <.SPX> was off 10.98 points, or 0.86
percent, at 1,267.62. The Nasdaq Composite Index <> was
down 26.53 points, or 1.10 percent, at 2,390.45.
Wall Street:
Banks also took a beating in Europe amid continued fallout
from a Barron's report over the weekend that suggested the U.S.
government may need to nationalize mortgage finance giants
Freddie Mac <FRE.N> and Fannie Mae <FNM.N>.
Royal Bank of Scotland <RBS.L> sank 5.9 percent, Fortis
<FOR.BR> tumbled 5 percent and Commerzbank <CBKG.DE> shed 4.9
percent. The DJ Stoxx bank index <.SX7P> fell 4.3 percent.
The FTSEurofirst 300 <> index of top European shares
closed 2.5 percent lower at 1,159.39 points.
While the bond and currency markets focused on the U.S.
wholesale inflation data, some on the equity markets said the
U.S. housing data was of greater concern.
"Inflation will continue to be a concern, but the real
worry is still in the housing market," said Franz Wenzel,
strategist at AXA Investment Managers in Paris.
"We will continue to have bleak data for a while. We know
from the Japanese example that a housing slump usually lasts
for longer than economists can think of."
Longer-dated U.S. Treasury debt prices eased after
relatively strong demand from a sale of Freddie Mac debt cut
into the safe-haven bidding for government bonds.
The $3 billion of debt sold by Freddie alleviated some
concerns that it and sibling Fannie might have trouble
accessing capital outside of any emergency government backing.
Euro zone government bond futures also turned negative in
late in the session, having earlier climbed to a fresh
three-month peak, as momentum fizzled in thin trade.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
5/32 to yield 3.84 percent. The 30-year U.S. Treasury
bond<US30YT=RR> fell 12/32 to yield 4.46 percent.
While the dollar fell, gold and other commodities also
pushed higher.
"On crude, trendline support is holding and the dollar is
exhausted and falling," said Mark Waggoner, president of Excel
Futures in Huntington Beach, California.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 0.46 percent at 76.747. Against the
yen, the dollar <JPY=> was down 0.29 percent at 109.76.
The euro <EUR=> was up 0.61 percent at $1.4785.
U.S. light sweet crude oil <CLc1> rose $2.33 to $115.20 a
barrel.
Spot gold prices <XAU=> rose $11.35 to $809.70 an ounce.
Oil:
Overnight in Asia, stocks slumped to a two-year low on
fears of a U.S. government bailout of Fannie and Freddie.
The MSCI pan-Asia equities index <.MIAS00000PUS> fell 1.7
percent to its lowest since July 2006, while the MSCI's
Asia-Pacific ex-Japan index <.MIAPJ0000PUS> fell for a third
straight session to a 17-month low.
Japan's Nikkei share average <> tumbled 2.3 percent to
a one-month low.
(Reporting by Ellis Mnyandu, Gertrude Chavez-Dreyfuss, Chris
Reese in New York and Ian Chua, Ikuko Kao and Jan Harvey in
London and Blaise Robinson in Paris)
(Writing by Herbert Lash. Editing by Richard Satran)
