* Global stocks slump 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
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Aug 19 (Reuters) - Global stocks tumbled and a
weaker U.S. dollar pushed oil prices higher on Tuesday as
credit concerns unsettled investors and a jump in U.S.
wholesale prices renewed worries about future inflation.
Crude oil, which had slipped earlier in the day below $112
a barrel, surged after a round of profit-taking weakened the
dollar for a second straight session. As the dollar weakens,
more of the currency is required to buy a barrel of oil.
The markets were unsettled early in the day by a government
report that showed U.S. producer prices jumped at the fastest
rate in 27 years in July initially lifted the dollar on the
belief the Federal Reserve will be forced to raise interest
rates to curb the pace of inflation.
But traders took advantage of the steep slide in stocks to
book profits on the dollar's recent gains. A dollar index was
on track for its worst daily loss in about five weeks, and the
euro was on pace to post its best one-day gain in a month.
U.S. Treasury and euro zone debt prices also initially
gained in safe-haven buying, also tracking a slide in stocks.
The threat of sharply higher inflation and lingering
worries that the two leading U.S. mortgage finance companies
could face steep losses weighed heavily on Wall Street. A
forecast of more write-downs at Lehman Brothers also dragged
down stocks.
JPMorgan Securities forecast Lehman <LEH.N> will likely
take a further $4 billion in write-downs in the third quarter
due to losses from mortgage-related investments.
Shares of financial companies were the biggest drag on the
Dow and the S&P 500. Bank of America <BAC.N> fell 4.16 percent
and Wells Fargo <WFC.N> dropped 3.5 percent each. The KBW index
of bank stocks <.BKX> fell 3.38 percent.
Lehman plunged 13 percent to $13.07.
"There's seemingly no end to this cycle, and that's to the
detriment of any financial stock," said Bucky Hellwig, senior
vice president at Morgan Asset Management in Birmingham,
Alabama.
"Home prices keep falling, assets continue to deteriorate,
the economy continues to slow, which can only worsen the
unemployment rate and increase delinquencies," he said.
The Dow Jones industrial average <> fell 130.84 points,
or 1.14 percent, at 11,348.55. The Standard & Poor's 500 Index
<.SPX> shed 11.88 points, or 0.93 percent, at 1,266.72. The
Nasdaq Composite Index <> dropped 32.62 points, or 1.35
percent, at 2,384.36.
European shares dropped in a broad sell-off to their
lowest close in two weeks on renewed credit fears and U.S.
economic data that showed U.S. economic woes are far from over.
Banks also took a beating in Europe. 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 equity market traders said the
U.S. housing data was of greater concern.
Housing starts posted their slowest pace in more than 17
years, falling 11 percent in June. The decline highlighted the
deterioration in U.S. housing, and pushed shares lower.
The Dow Jones index of home builders' shares <.DJUSHB>
dropped 3.7 percent.
"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."
Shares of U.S. home builders slid after the Commerce
Department said housing starts in July fell 11 percent.
Longer-dated U.S. Treasury debt prices fell after strong
demand for a debt sale by Freddie Mac <FRE.N> drew investors
away from lower-yielding U.S. government debt.
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.
Oil prices rose as part of a broad commodities rebound
triggered by weakness in the U.S. dollar.
"On crude, trendline support is holding and the dollar is
exhausted and falling," said Mark Waggoner, president of Excel
Futures in Huntington Beach, California.
U.S. crude <CLc1> gained $1.66, or 1.47 percent, to settle
at $114.53 a barrel. London Brent <LCOc1> crude rose $1.31 to
$113.25 a barrel.
The December contract for gold <GCZ8> settled up $11.10 at
$816.80 an ounce in New York.
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 1.8
percent to its lowest since July 2006, while the MSCI's
Asia-Pacific ex-Japan index <.MIAPJ0000PUS> fell almost 2
percent 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)
