(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, April 29 (Reuters) - Oil fell sharply on Tuesday
and the dollar rose to its highest against the euro in almost a
month as expectations grew that the Federal Reserve will signal
an end to its interest rate easing campaign.
Global stocks fell, with the exception of U.S. technology
shares, on signs the credit crisis is sapping U.S. and European
financial shares and the two region's economies.
U.S. Treasury debt prices rose as gloomy data on consumer
confidence and the housing market heightened fears of a U.S.
recession and spurred safe-haven demand for low-risk bonds.
The notion of a flagging U.S. economy was revived by data
showing record annual declines in U.S. home prices in February
and consumer confidence sinking to a five-year low in April.
Analysts expect Fed policy-makers to cut benchmark
borrowing costs by a quarter percentage point, to 2 percent,
and indicate that the rate-cutting cycle is over in their
announcement on Wednesday at the end of the Fed's two-day
meeting.
The dollar was headed for its largest monthly gain in
almost a year as the Fed began its deliberations on Tuesday.
"The expected shift in monetary stance by the Fed has been
the basis of this rally in the dollar and its potential
recovery," said Brian Dolan, chief currency strategist at
Forex.com in Bedminster, New Jersey.
European shares ended sharply lower, breaking four days of
gains amid a decline in banking and miners' stocks. Regulators'
rejection of a new cholesterol drug from Merck & Co Inc <MRK.N>
made the pharmaceuticals bellwether the biggest drag on the Dow
Jones industrial average <> and benchmark Standard & Poor's
500 Index <.SPX>.
The Dow fell 39.81 points, or 0.31 percent, to 12,831.94.
The S&P 500 declined 5.41 points, or 0.39 percent, to 1,390.96.
The Nasdaq Composite Index <> rose 1.70 points, or 0.07
percent, to 2,426.10.
Yahoo Inc <YHOO.O>, Cisco Systems Inc <CSCO.O> and Apple
Inc <AAPL.O> helped the Nasdaq stay above water.
U.S. Treasury debt prices rose on the weak economic
outlook.
The benchmark 10-year U.S. Treasury note <US10YT=RR> added
6/32 to yield 3.81 percent. The 2-year U.S. Treasury note
<US2YT=RR> was flat, yielding 2.35 percent. The 30-year U.S.
Treasury bond <US30YT=RR> rose 14/32 to yield 4.54 percent.
A deepening U.S. housing slump led Countrywide Financial
Corp <CFC.N> and GMAC LLC, which run the largest independent
U.S. mortgage lenders, to post big first-quarter losses.
Countrywide posted a surprisingly large $893.1 million loss
and took more than $3 billion of charges for write-downs and
bad loans. Countrywide said about one in 11 borrowers and more
than one in three subprime borrowers have fallen behind on home
loan payments, both nearly twice as many as a year earlier.
GMAC said its loss nearly doubled as more customers fell
behind on mortgage payments. The company warned that it might
not be profitable until well into 2009, later than expected.
In Europe, HBOS Plc <HBOS.L>, Britain's biggest mortgage
lender, sought fresh funding and Deutsche Bank AG <DBKGn.DE>
suffered its first quarterly loss in years.
HBOS asked shareholders for 4 billion pounds ($7.9 billion)
via a rights issue as it grapples with toxic assets and a poor
home loans market. Deutsche Bank wrote down 2.7 billion euros
($4.2 billion) and abandoned its 2008 profits target.
Europe's biggest insurer, Allianz SE <ALVG.DE>, was also
hit by the credit crisis. It wrote down 900 million euros.
The pan-European FTSEurofirst 300 <> index ended down
0.8 percent at 1,328.45 points, with British shares faring less
poorly than German and French stocks as surging earnings from
rising energy prices lifted BP <BP.L> and Shell <RDSa.L>.
BP and Shell were the top two gainers in the index, jumping
more than 5 percent.
Oil prices retreated from Monday's record as a rebound in
the dollar spurred selling and fears over a rash of global
supply disruptions began to recede.
U.S. crude futures <CLc1> settled down $3.12, or 2.6
percent, to $115.63 a barrel after dropping as low as $114.95.
London Brent crude fell $3.31 at $113.43.
U.S. gold futures ended 2 percent lower as a combination of
a dollar rise, oil decline and weak sentiment prompted heavy
selling ahead of the Fed meeting.
The June contract <GCM8> for gold futures in New York
settled down $18.70, or 2.1 percent, at $876.80 an ounce.
Gold could slip further if the U.S. economy goes into a
recession, which would bring commodity prices and inflation
down, said Jonathan Jossen, a floor trader at the New York
Mercantile Exchange.
The dollar rose against major trading-partner currencies,
with the U.S. Dollar Index <.DXY> up 0.52 percent at 72.879.
The euro <EUR=> fell 0.60 percent to $1.5565, and against the
yen, the dollar <JPY=> was down 0.08 percent at 103.99.
Asian stocks stalled near three-month highs ahead of the
Fed's rate decision and economic data that could draw a line
under the downturn or send markets lower.
The nervous wait kept buyers at bay and Asian stocks
outside Japan <.MIAPJ0000PUS> slipped 0.3 percent.
(Reporting by Richard Valdmanis, Ellis Mnyandu, Chris Reese,
Gertrude Chavez-Dreyfuss and Nick Olivari in New York and Atul
Prakash in London; Editing by Dan Grebler)
