* Wall St drops after surprise decline in U.S. retail sales
* Treasuries, dollar up as investors turn more cautious
* Emerging equity markets hold onto gains on China's hopes
By Walter Brandimarte
NEW YORK, April 14 (Reuters) - Investors moved out of U.S.
stocks and into relatively safer assets such as Treasuries and
the dollar on Tuesday after an unexpected drop in U.S. retail
sales curbed hopes that the world's largest economy may be
close to exiting the recession.
But expectations of a faster-than-forecast recovery in the
Chinese economy supported commodity prices and emerging equity
markets this week.
European shares also closed higher for the third
consecutive session as banks rose on strong results from
Goldman Sachs <GS.N> and miners benefited from rising prices of
metals.
In the United States, however, a government report showed
retail sales dropped 1.1 percent in March, snapping two months
of increases. U.S. producer prices also fell unexpectedly in
March, notching the largest year-on-year decline since 1950.
"I think this serves as a reminder that the recession is
still here and that rising unemployment, declining income as
well as a deep plunge in household net worth will adversely
affect retail sales indefinitely," said John Lonski, chief
economist with Moody's Investors Service.
Wall Street sank after the data. At 1723 GMT, the Dow Jones
industrial average <> declined 137.39 points, or 1.71
percent, at 7,920.42, while the Standard & Poor's 500 Index
<.SPX> was down 16.55 points, or 1.93 percent, at 842.18. The
Nasdaq Composite Index <> fell 31.59 points, or 1.91
percent, at 1,621.72.
U.S. Treasury debt prices rallied as a result, also boosted
by purchases of $7.3 billion in bonds by the Federal Reserve.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
20/32, with the yield at 2.78 percent. The 30-year U.S.
Treasury bond <US30YT=RR> rose 30/32, with the yield at 3.66
percent.
In currencies, the dollar was up against a basket of major
trading-partner currencies as investors favored currencies seen
as safe havens. The U.S. Dollar Index <.DXY> rose 0.15 percent
at 84.738 from a previous session close of 84.614.
The euro <EUR=> weakened 0.68 percent to $1.3272. Against
the Japanese yen, the dollar <JPY=> was down 1.19 percent at
98.84.
"The currency that most benefited from this return of risk
aversion was the yen," said Matthew Strauss, senior currency
strategist at RBC Capital Markets in Toronto.
Also underscoring investors' increased aversion to risk,
yield spreads between emerging market debt and U.S. Treasuries
widened 12 basis points to 568 basis points, according to the
JPMorgan EMBI+ index <11EMJ>.
CHINA HOPES
But expectations that the Chinese economy might be
recovering at a faster-than-expected pace supported the price
of metals such as copper, which touched its highest since
October on the London Metal Exchange.
On Saturday, Chinese Premier Wen Jiabao said industrial
production for March grew a greater-than-expected 8.3 percent.
Shares of miners rose as a result, supporting gains of 0.64
percent at the MSCI stock index for emerging markets <.MSCIEF>.
The Latin American portion of the indicator <.MILA00000PUS>
declined 2.4 percent, however, as Wall Street increased losses
in the afternoon and oil prices slipped.
U.S. crude oil <CLc1> declined 73 cents, or 1.46 percent,
to $49.32 per barrel.
Still, the Reuters/Jefferies CRB Index <.CRB> of 19
commodities futures was practically unchanged at at 226.61
points, supported by rising prices of metals.
(Additional reporting by Dena Aubin and Wanfeng Zhou in New
York; Editing by James Dalgleish)
