* U.S. GDP, euro zone inflation, Japanese data weigh
* Bonds safety bidding as GDP data bodes ill for 2009
* Oil falls back after revised EIA data shows less demand
* Euro tumbles on weak euro zone inflation data
(Recasts with U.S. markets, changes dateline; previous
LONDON)
By Herbert Lash
NEW YORK, Jan 30 (Reuters) - Signs of deepening economic
weakness around the world on Friday dragged stocks lower, with
the Dow close to its worst decline in January since 1960, and
investors fled to the safety of gold and government debt.
Gold futures jumped nearly 2 percent on flight-to-quality
buying and record investment demand, while the price of
longer-dated U.S. and euro zone government bonds rose,
bolstered by demand for safe-havens in financial markets.
A plunge in euro zone inflation, a record fall in Japanese
industrial production and the fastest shrinking of the U.S.
economy in nearly 27 years heightened fears that the global
downturn could be worst than many investors had feared.
World stocks, as measured by MSCI's all-country index
<.MIWD00000PUS>, fell 1.6 percent on Friday and was poised to
close the month down more 8 percent.
European shares rose and fell throughout the session but a
close reading of a report on U.S. gross domestic product put a
damper on investment sentiment as it showed a large rise in
unsold goods, suggesting further corporate cutbacks ahead.
U.S. GDP fell at a 3.8 percent annual rate in the fourth
quarter, but business equipment and software spending fell
27.8 percent and exports slipped 19.7 percent.
"This is one where the headline is clearly better than
people were expecting," said Nigel Gault, chief U.S. economist
at Global Insight in Lexington, Massachusetts. "But underneath,
those details do not look healthy and it's telling us firms
were not cutting production as fast as their sales were
falling.
"And that's a bad sign for what's going to happen in the
first quarter because it says they got to work off these excess
inventories," Gault said.
Highlighting the corporate slowdown, Procter & Gamble Co
<PG.N>, the world's largest consumer products maker, reported
profit that missed expectations, becoming the latest company to
cut its full-year earnings forecast on weaker demand.
P&G was the Dow's biggest drag, down 5.2 percent
[]. The Dow <> was down 8.2 percent for the
month, close to an 8.4 percent slide in January 1960.
Before 1 p.m., the Dow Jones industrial average <> was
down 81.64 points, or 1.00 percent, at 8,067.37. The Standard &
Poor's 500 Index <.SPX> was down 8.85 points, or 1.05 percent,
at 836.29. The Nasdaq Composite Index <> was down 13.89
points, or 0.92 percent, at 1,493.95.
The pan-European FTSEurofirst 300 index <> closed
little changed, up 0.03 percent at 796.76 points. in a volatile
session in which commodities shares tumbled.
Miner Xstrata <XTA.L> was Europe's top loser, dropping 11.8
percent, while BHP Billiton <BLT.L> fell 7.4 percent, the
biggest drag to the European index, as copper prices fell.
Oil shares also fell, with BP <BP.L> down 0.9 percent and
Royal Dutch Shell <RDSa.L> off 3.4 percent.
The euro weakened against the dollar as the data further
underlined the region's vulnerability, but shorter-dated euro
zone government bonds rallied on speculation the European
Central Bank will cut interest rates earlier than expected.
The euro <EUR=> was down 1.12 percent at $1.2813.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.53 percent at 85.939. Against
the yen, the dollar <JPY=> was down 0.09 percent at 89.85.
Inflation in the euro zone plunged in January to its lowest
in almost 10 years and unemployment rose more than expected,
boosting pressure on the ECB to cut rates further.
"The inflation number was definitely a shock, a much
bigger-than-expected drop, and just shows how strong
disinflationary pressures are in Europe," said Matthew
Sharratt, an economist at Bank of America.
In Japan, industrial production fell a record 9.6 percent
in December while core annual inflation almost evaporated,
reinforcing expectations of a record economic contraction as
the global financial crisis worsens.
Japan's Nikkei share average <> fell 3.1 percent,
while stocks in Asia-Pacific outside Japan <.MIAPJ0000PUS> were
off 0.2 percent.
Oil futures pared gains after the Energy Information
Administration reported U.S. oil demand in November was 305,000
barrels a day less than previously estimated and was down 1.577
million barrels per day from a year earlier.
"The EIA demand revision pulled crude off the high along
with the stock market pulling back also," said Tom Bentz,
analyst at BNP Commodity Futures Inc. in New York.
U.S. light sweet crude oil <CLc1> rose 52 cents to $41.96
per barrel.
Spot gold prices <XAU=> rose $16.65 to $924.05 an ounce.
(Reporting by Leah Schnurr, Gertrude Chavez-Dreyfuss, Chris
Reese, Frank Tang in New York; Lucia Mutikani in Washington;
Rebekah Curtis, Kirsten Donovan and Chris Baldwin in London;
Jan Strupczewski in Brussels; writing by Herbert Lash, Editing
by Chizu Nomiyama)
