(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, April 21 (Reuters) - A record high in surging oil
prices and Bank of America's dour outlook and poor earnings
pummeled investor sentiment on Monday, sending stock markets in
Europe and the United States lower.
The dollar fell broadly after weaker-than-expected profits
at the largest U.S. retail bank curbed last week's upbeat
optimism that a global credit crunch was close to an end.
Oil hit a fresh peak above $117 a barrel on worries about
supply disruptions from major producers and comments by the
Organization of Petroleum Exporting Countries reiterating that
there was no need to raise output. Oil prices later eased.
U.S. and euro zone government debt prices fell amid fading
hopes that the European Central Bank will cut interest rates or
that the Federal Reserve would continue aggressively cutting
rates.
Wall Street snapped a four-day winning streak and European
shares fell sharply on renewed concerns that the banking sector
could face a prolonged period of dreary earnings from tight
credit markets sparked by the U.S. housing slump.
Analysts said banks may need to raise more capital, and
Bank of America <BAC.N> Chief Executive Kenneth Lewis said the
effects of the battered housing market may take at least the
rest of the year to work out.
"People think the profitability prospects for banks are
significantly damaged," said Stephen Massocca, co-chief
executive at San Francisco-based investment bank Pacific Growth
Equities. "I don't see nor do I anticipate that the bank
capital raises are over."
The Dow Jones industrial average <> was down 62.45
points, or 0.49 percent, at 12,786.91. The Standard & Poor's
500 Index <.SPX> was down 7.19 points, or 0.52 percent, at
1,383.14. The Nasdaq Composite Index <> was down 3.44
points, or 0.14 percent, at 2,399.53.
Investors had shrugged off weak earnings reports last week
from Citigroup Inc <C.N>, JPMorgan Chase & Co <JPM.N> and
Wachovia Corp <WB.N> amid optimism the credit crunch was past.
But Wall Street's mood turned more negative after Bank of
America's results fell short as more consumers and businesses
fell behind on debt payments. Quarterly profit fell a
larger-than-expected 77 percent, dragged down by the bank's
more than $5 billion of write-downs and credit-related costs.
"The banking results are showing write-downs across the
different asset classes. It's not just mortgages anymore, but
they are showing write-downs in small business loans and also
on consumer debt like auto loans," said Willem Sels, a credit
strategist at Dresdner Kleinwort.
If tight lending standards persist, corporate defaults will
rise relatively sharply, Sels said.
"Markets seem to want to focus on the positives and believe
that banks can start with a clean slate. But the loan and
mortgage books' problems are still there," Sels said.
A drop in shares of Royal Bank of Scotland <RBS.L>, which
was expected to announce a large rights issue, and Swiss food
group Nestle <NESN.VX> after a disappointing trading update
pulled European shares lower.
RBS confirmed in a brief statement that it was considering
a rights issue, details of which could come on Tuesday.
The bank is set to announce Europe's biggest-ever rights
issue and more than $10 billion of losses on toxic investments
this week, people familiar with the matter have said.
The FTSEurofirst 300 <> index of top European shares
fell 1.06 percent to 1,311.82 points.
The index gained more than 3 percent last week after a
flurry of positive earnings surprises on both sides of the
Atlantic as the reporting season continued.
But Morgan Stanley said the bear market rally, which has
seen the pan-European FTSEurofirst 300 gain around 10 percent
from its low hit on March 17, is over.
Asian shares rose, led by financial firms, to their highest
in more than seven weeks in a rally that extended Friday's
gains on hopes the credit crisis may be at a turning point.
The MSCI measure of Asian stocks excluding Japan
<.MIAPJ0000PUS> rose 2.6 percent after earlier hitting its
highest level since Feb. 29.
Crude oil prices eased on profit-taking after setting the
record high of $117.40.
U.S. light sweet crude oil <CLc1> fell 71 cents, or 0.61
percent, to $115.98 per barrel.
Gold steadied after gaining overnight on record high oil
prices, with investors, who kept an eye on the energy market
for direction, trading cautiously after Friday's sell-off.
Gold is generally seen as a hedge against oil-led
inflation. The metal also moves in the opposite direction of
the dollar, as a weaker U.S. currency makes gold cheaper for
holders of other currencies and often lifts bullion demand.
U.S. spot gold prices <XAU=> fell $1.35, or 0.15 percent,
to $914.65.
The dollar also fell against major currencies, a reversal
of recent gains, with the U.S. Dollar Index <.DXY> down 0.30
percent at 71.75. The euro <EUR=> rose 0.46 percent to $1.5885.
Against the yen, the dollar <JPY=> fell 0.36 percent to 103.28
from a previous session close of 103.65.
U.S. Treasury debt prices were lower.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 10/32, with the yield at 3.75 percent. The two-year U.S.
Treasury note <US2YT=RR> was down 4/32, with the yield at 2.19
percent. The 30-year U.S. Treasury bond <US30YT=RR> was down
11/32, with the yield at 4.52 percent.
(Reporting by Ellis Mnyandu, Vivianne Rodrigues and Ellen
Freilich in New York, and Natalie Harrison and Ikuko Kao in
London; Editing by Jonathan Oatis)
