(Updates with European outlook, fresh prices, quotes)
By Tom Miles
HONG KONG, Feb 29 (Reuters) - The dollar dropped to a
3-year low against the yen on Friday amid renewed worries about
the U.S. economy, rattling stock markets, bolstering bonds and
helping drive up prices of safe-haven gold and oil to all-time
highs.
Weak U.S. economic data and a warning from Federal Reserve
Chairman Ben Bernanke that some small U.S. banks could fail
raised expectations for more interest rate cuts in the world's
leading economy and heightened fears of a recession.
[]
Asian stocks fell more than 1 percent and major European
indexes were expected to open lower.
The dollar <JPY=> plunged to 104.58 yen, its lowest since
May 2005, after a slide in the U.S. currency below the key 105
yen level triggered a wave of stop-loss orders.
Crude oil <CLc1> hit $103 a barrel, breaking the
inflation-adjusted high of $102.53 reached in 1980, fuelled by
the weak dollar, a fire at a European gas terminal and problems
with a pipeline in Ecuador. []
Gold <XAU=> hit a new high of $973.10 an ounce, up more
than 16 percent this year and needing only another 3 percent
spurt to hit the $1,000 mark.
"Most of the funds are buying inflation hedges such as
gold, silver and oil. It's still a bull market, where hedge
funds and banks buy precious metals," said William Kwan, a
dealer at Phillip Futures in Singapore.
By 0600 GMT, U.S. light crude was quoted at $102.79 a
barrel and spot gold stood at $972.90/3.70 an ounce.
"I think inflation is really getting out of hand. I am
looking at $955 for support and resistance at $985," for gold,
said Kwan.
BETTER LEFT UNSAID
Asian stocks fell, with domestic conditions in Australia
and Japan -- where inflation hit a 10-year high of 0.8 percent
[] -- conspiring to make life tough on the home
front as well as in the U.S. export market.
MSCI's index of Asian stocks outside Japan <.MIAPJ0000PUS>
fell 1.3 percent, while Japan's benchmark Nikkei average
<> closed down 2.3 percent.
That followed a 0.9 percent fall in the Dow <> on
Thursday. Wall Street's nerves, gauged by the CBOE Volatility
Index <.VIX>, found their calmest moment of this year on
Tuesday, but Bernanke's doom-laden testimony brought the
jitters back.
"Bernanke's remarks were something a central banker should
never say," said a bond strategist at a U.S. brokerage. "It
shocked us and certainly worsened credit jitters in the
market."
U.S. stocks were also dragged down by a large quarterly
loss at American International Group Inc <AIG.N>, the world's
largest insurer, on write-downs of derivatives related to bad
mortgage investments. []
Friday may bring more ill omens for recession-watchers,
with eurozone inflation, U.S. personal consumption figures, the
Chicago Purchasing Managers Index and the final February
reading on the Reuters/University of Michigan consumer
sentiment index []. <ECON>
Investors seeking shelter from tumbling stock markets
snapped up U.S. Treasuries and Japanese government debt,
pushing the benchmark 10-year yield <JP10YTN=JBTC> to a 5-week
low of 1.365 percent.
"The huge losses at AIG along with Bernanke's warnings
about small banks and remarks suggesting a U.S. recession all
point to yields falling further," said a trader at a Japanese
trust bank.
(Additional reporting by Elaine Lies and Rika Otsuka in TOKYO;
Luke Pachymuthu and Lewa Pardomuan in SINGAPORE; Editing by
Lincoln Feast)
