(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, March 25 (Reuters) - The dollar retreated broadly
and oil slid down for the fourth straight session on Tuesday as
a fall in consumer confidence and lower housing prices renewed
concerns about the health of the U.S. economy.
U.S. stocks traded mostly flat, while European stocks rose
after a four-day holiday weekend, propelled by gains in
financial shares in an echo of Monday's rally on Wall Street
after JPMorgan Chase sweetened its bid for rival investment
bank Bear Stearns.
Gold rebounded after the dollar resumed its downward trend,
but weaker oil prices reduced the metal's appeal as a hedge
against inflation and capped gains.
Two reports on Tuesday showing further drops in U.S. home
prices revived concerns about the U.S. consumer and the
economy's slowdown, reversing day-earlier optimism on a report
that showed a rise in sales of existing homes. The new data
lifted U.S. Treasury debt prices.
Another report showed U.S. consumer confidence in March
fell to a five-year low, adding to the sense that while much
has been done to ease a credit crunch that has slammed
financial markets, the outlook on Main Street is worsening.
U.S. stocks capped their biggest two-session advance in
nearly four months on Monday after JPMorgan Chase & Co <JPM.N>
lifted its offer five-fold for Bear Stearns to $10 a share,
mitigating concerns in the key but battered financial sector.
"What you're getting is the reality check of the rally we
had since the Bear Stearns deal was announced," said Jim Awad,
chairman of W.P. Stewart & Co Ltd in New York.
"Up until today the market has had an admirable capability
to go up in the face of bad news. Today is the first day it is
not holding."
The Dow Jones industrial average <> was down 20.76
points, or 0.17 percent, at 12,527.88. The Standard & Poor's
500 Index <.SPX> was up 2.71 points, or 0.20 percent, at
1,352.59. The Nasdaq Composite Index <> was up 7.71
points, or 0.33 percent, at 2,334.46.
"CREDIT CONTRACTION NOT OVER"
The dollar posted its steepest loss against the euro since
March 12.
"The credit contraction is not over," said Axel Merk,
portfolio manager of the $300 million Merk Hard Currency Fund
in Palo Alto, California. "What the Federal Reserve has done is
stabilize the financial system, which was necessary, but that
doesn't mean that the U.S. economy will go back to growth."
In midday New York trade, the euro was up 1 percent on the
day at $1.5586 <EUR=>. The single currency is down roughly 1.9
percent from last week's record $1.5904, but still up 6.8
percent against the dollar since the beginning of the year.
The dollar was down 0.8 percent against the yen at 99.900
yen <JPY=>, erasing earlier gains above 101 yen. Against the
Swiss franc, the dollar fell 1.00 percent to 1.0084 francs.
A record drop in home values in January weighed on investor
sentiment as U.S. consumer confidence plunged on worries over
rising inflation and fewer jobs.
Prices of existing U.S. single-family homes slumped by
about 11 percent in January from the same period a year ago,
according to two closely watched Standard & Poor's/Case-Shiller
gauges.
A separate report by the Conference Board showed consumer
confidence slid and expectations for the future were at a
34-year low in March while anxieties over job prospects and
inflation were at their highest since the aftermath of
Hurricane Katrina in late 2005.
In the metals markets, investors were cautious after
confidence was shaken by a recent sell-off in commodities, with
gold falling more than 10 percent last week since spiking to a
record $1,030.80 an ounce on March 17.
Gold <XAU=> touched a low of $911.50 an ounce on Tuesday
before hitting a high of $935.70.
Oil edged down on concerns about weaker demand in top oil
consumer the United States, which tempted some players to cash
in.
U.S. crude <CLc1> was down 66 cents to $100.20 a barrel,
off the day's high of $101.60 and sharply down from a record
high of $111.80 touched on March 17.
London Brent crude <LCOc1> fell 2 cents at $99.84 a
barrel.
"Sentiment is likely to turn sour again and the latest U.S.
consumer confidence data is not encouraging news," said Harry
Tchilinguirian, an analyst at BNP Paribas.
Equity markets in Europe and Asia were driven by Monday's
report of a surprising rise in sales of U.S. pre-owned homes
last month.
Some investors took this as a sign that the worst may be
over for the U.S. housing sector, which has been behind much of
the economic and credit worries of recent months.
In addition, JPMorgan's higher offer for Bear Stearns
alleviated some concern about other banking shares.
"It gives people hope that maybe the darkest period is
over," said Hans Kunnen, head of investment markets research at
Colonial First State in Sydney. "But the market is just
operating like a yo-yo within a band. I refuse to get carried
away."
A mix of U.S. news from Monday, when European markets were
closed, including optimism over JPMorgan's higher bid for Bear
Stearns and a belief aggressive Federal Reserve action to ease
a credit crunch is working sent stocks soaring in Europe.
The FTSEurofirst 300 index of top European shares closed
3.12 percent higher at 1,264.94 points.
The equity gains pushed government debt sharply lower and
yields higher -- two-year Schatz yields jumped by about a
quarter of a percentage point and credit spreads tightened.
Expectations of a euro zone rate cut diminished as the Fed
was seen on target to restoring financial order.
Euro zone government bond futures fell sharply to trade
over a point lower and short-dated yields were on track for
their biggest one-day jump in more than five years amid a rally
in European equities.
The Euribor interest rate futures strip <0#FEI:>, a gauge
of short-term expectations, no longer fully priced in a rate
cut and was at its lowest level of expectations this year.
Asian shares jumped following the U.S. stock surge on
Monday, and Japanese government bond futures retreated from
last week's five-year highs amid tentative hopes the United
States would weather the credit crisis.
MSCI's index of Asia shares outside of Japan <.MSCIAPJ>
added 4.26 percent, its biggest daily gain since late January
and up for the third straight session. The benchmark is however
still down 15 percent this year.
Japan's Nikkei index <> closed up 2.1 percent as
exporters gained as the yen traded well below last week's near
13-year high against the dollar, easing earnings concerns.
MSCI's benchmark world stock index <.MIWD00000PUS> was up
2.1 percent.
(Additional reporting by Gertrude Chavez-Dreyfuss, Justin
Grant and Ellen Freilich in New York and Maryelle Demongeot and
Atul Prakash in London; Editing by Leslie Adler)
