* U.S. stocks slip as economic pessimism snuffs oil's fall
* Oil slides to three-month low of below $120 barrel
* Poor global economic outlook spurs modest bid for debt
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK (Reuters) - Oil prices slid to a
three-month low Monday, and lower oil and metals prices
dragged on stocks around the world, along with an increasingly
pessimistic view of the global economy.
Crude tumbled more than $5 to below $120 a barrel as
signs of increased OPEC output and an economic slowdown trumped
concerns about supplies driven by a tropical storm in the Gulf
of Mexico and Iran's nuclear program dispute with the West.
The sell-off in oil prices led the dollar higher against
the yen on Monday, but demand versus the euro was capped as
traders awaited a host of central bank meetings this week. The
Federal Reserve, the Bank of England and the European Central
Bank will all issue rate decisions.
The decline in oil briefly drove the Dow higher and helped
the Nasdaq and S&P 500 pare losses, but worries that the
housing slump could fuel further losses at financial companies
helped drive all three indexes to close lower.
Another round of dreary U.S. and euro zone economic news
helped boost demand for safe-haven government debt on both
sides of the Atlantic. Gains, however, were limited ahead of
the Fed's policy-setting meeting Tuesday.
Fears that a U.S. housing slump will spawn further losses
and compound the troubles facing the U.S. economy and elsewhere
drove financial stocks lower in the United States and Europe.
"The pullback in oil helped, but when you strip away the
backdrop, we're still faced with an anemic economy and tepid
profits, and I'm not sure there's a real compelling story to
jump on the equity bandwagon," said Jack Ablin, chief
investment officer at Harris Private Bank in Chicago.
The Dow Jones industrial average fell 42.17 points,
or 0.37 percent, at 11,284.15. The Standard & Poor's 500 Index
slid 11.30 points, or 0.90 percent, at 1,249.01. The
Nasdaq Composite Index shed 25.40 points, or 1.10
percent, at 2,285.56.
News that WCI Communities, a U.S. builder of
luxury homes whose business is concentrated in Florida, filed
for bankruptcy protection, also unnerved investors.
Bank of America Corpfell more than 2 percent,
Citigroup was off 0.2 percent and JPMorgan Chase
slid 1.5 percent.
The S&P financial index fell 1.3 percent, while the
Dow Jones home construction index lost 1.7 percent.
CREDIT CRUNCH IN SPOTLIGHT
European shares fell for a third session in a row after
results from HSBC, Europe's largest bank, highlighted
the credit crunch's impact on banks. A drop in metal prices
sapped mining shares.
Shares in HSBC were among the largest individual drags on
the European market after it said first-half profits fell 28
percent, in line with forecasts, and took a $14 billion hit on
bad debts on U.S. home loans.
Despite strong growth in Asia and "reasonable" earnings,
HSBC's results showed problems in the United States continue,
said Henk Potts, a strategist at Barclays Stockbrokers.
"The credit crunch continues to bite and even for some of
the more successful financial institutions it continues to take
its toll," Potts said.
HSBC shares fell 1.1 percent.
Mining companies Rio Tinto , Xstrata and
Anglo American all fell between 4.5 percent and 6
percent as copper prices fell to a six-month on concerns the
economic slowdown could dent demand.
Investor morale in the euro zone fell in August to a
five-year low while the jobless rate in Spain hit a 10-year
high in July as consumer confidence plumbed a record low.
U.S. economic data for the month of June also pointed to a
growing credit squeeze on consumers. U.S. consumer prices
jumped at the sharpest rate since 1981 and Americans received
their smallest gain in incomes in a year.
While the strongest monthly gain in factory orders since
December beat expectations, rising 1.7 percent, investors eyed
the inflation data and concluded consumers were under growing
pressure. The Commerce Department said that except for stimulus
payments, disposable incomes would have shrunk in June.
Euro zone government bonds rose, with the 10-year futures
hitting near two-month highs, but U.S. Treasury debt prices
inched down as a higher-than-expected core inflation reading
and the prospect of more supply made investors cautious.
"The bond market is taking its cue partly from what is
happening in equities and also there is just a general
realization that this downturn in economic growth has spread to
other countries," said Joseph DiCenso, fixed income strategist
with Lehman Brothers in New York.
U.S. Treasury debt prices were lower.
The benchmark 10-year U.S. Treasury note fell
6/32 to yield 3.96 percent. The 30-year U.S. Treasury bond
fell 9/32 to yield 4.59 percent.
The dollar rose against major currencies, with the U.S.
Dollar Index up 0.13 percent at 73.457. Against the yen,
the dollar gained 0.48 percent at 108.18.
The euro rose 0.13 percent at $1.5584.
The dollar rose as oil's drop and a surprise jump in U.S.
factory orders in June raised scattered optimism about the
prospects of the broader U.S. economy.
Oil's losses extended a steep slide from a mid-July peak
above $147 a barrel, and came despite a storm in the Gulf of
Mexico that was curbing oil output, shipping and refining.
"Crude futures are down despite a brewing storm and that
shows you how momentum has shifted in this market," said Phil
Flynn, analyst at Alaron Trading in Chicago.
U.S. light crude fell $3.69 to settle at $121.41 a
barrel on the New York Mercantile Exchange, after falling to
$119.50, the lowest level since early May. London Brent
fell $3.55 to $120.63.
The sharp decline in crude prices pummeled gold's appeal as
an inflation hedge.
The December for gold ended $9.60 lower at $907.90
an ounce in New York.
Platinum futures tumbled for a second session on demand
worries stirred by last week's dismal U.S. auto sales, but
traders expect prices to rebound as the sell-off may be over
done.
Asian stocks fell as fears of a recession in the United
States dented shares of Asian manufacturers that rely on U.S.
demand.
Tokyo's Nikkei index fell 1.2 percent, dragged down
by the shares in auto makers. The MSCI index of Asian stocks
outside Japan fell 0.7 percent at 0600 GMT.
(Reporting by Richard Valdmanis, Ellis Mnyandu, Kristina
Cooke, John Parry, Vivianne Rodrigues and Frank Tang in New
York and Golnar Motevalli, Ian Chua and Amanda Cooper; Writing
by Herbert Lash. Editing by Leslie Adler)
