* Global stocks slide on U.S. stake in Citigroup
* U.S. dollar rises on safe-haven bid, gold reverses gains
* Oil dips on U.S. GDP 4th quarter contraction
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Feb 27 (Reuters) - A deep contraction of the U.S.
economy pushed oil prices down on Friday while global equity
markets fell on the latest U.S. government move to save ailing
Citigroup, knocking the S&P 500 and Dow to 12-year lows.
The U.S. government said it could take as much as a 36
percent state in Citigroup's <C.N> common stock, leading the
U.S. dollar to rise broadly as investors worried that other
American banks might also need a similar show of support.
U.S. Treasuries erased early gains and long-dated bonds
turned lower after a brief paring of stock losses led investors
to fear a rebounding equity markets could take money away from
looming massive sales of government debt.
The broad market Standard & Poor's 500 Index <.SPX> fell to
its lowest close since December 1996, increasing the depth of a
bear market that is now off 53 percent from its peak in 2007.
The Dow Jones industrial average <> fell to its lowest
close since May 1997.
The U.S. government will swap up to $25 billion of its
preferred shares of Citigroup into common stock of the bank in
one of its most dramatic efforts to prop up the battered
banking sector.
Citigroup will stop paying dividends on its preferred and
common stock and promised to shake up its board of directors.
Citigroup shares plunged 39 percent to close at $1.50,
while shares of Bank of America <BAC.N> plummeted almost 26
percent to $3.95.
"There are continued beliefs that Citibank is not the last
bank that the government will take a large stake in," said
William Lefkowitz, options strategist at brokerage firm
vFinance Investments in New York.
"Some people believe that if the government takes a 30 to
40 percent stake, which they did in Citibank, that would be
considered some form of nationalization," he said.
The Dow fell 119.15 points, or 1.66 percent, at 7,062.93.
The S&P 500 lost 17.74 points, or 2.36 percent, at 735.09. The
Nasdaq Composite Index <> declined 13.63 points, or 0.98
percent, at 1,377.84.
The dollar rose but the yen rebounded from sharp weekly
losses as month-end and repatriation flows gave some support to
the currency, analysts said.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.33 percent at 88.132. Against
the yen, the dollar <JPY=> fell 0.87 percent at 97.53.
The euro <EUR=> was down 0.47 percent at $1.267.
Oil prices fell. U.S. crude <CLc1> fell 46 cents to settle
at $44.76 a barrel after touching a session low of $42.55,
reversing a three-day rally. London Brent crude <LCOc1> fell 16
cents to $46.35 a barrel.
Despite persistent concerns about the fragility of global
banks, evidenced by another battering of U.S. and British
financial stocks on Friday, investors are becoming warier of
buying longer-term Treasury notes and bonds.
Investors fear that a massive tide of government bond
issuance will push prices lower.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
8/32 in price to yield 3.03 percent. But the 2-year U.S.
Treasury note <US2YT=RR> rose 6/32 in price to yield 0.99
percent.
"The Treasury market is acting as a safe haven and going
forward I am somewhat concerned because I am not sure what will
stimulate the interest in Treasuries, with all the financing we
are doing," said Joe Keetle, senior wealth manager at Dawson
Wealth Management in Cleveland.
U.S. gold futures settled a hair lower, falling for a fifth
straight session after bullion climbed above $1,000 last week,
as investors sold the metal amid volatile stock markets.
Gold for April delivery <GCJ9> settled down 10 cents at
$942.50 an ounce in New York.
European shares fell on the Citigroup news and as a big
loss at Lloyds Banking Group <LLOY.L> hit British banks.
The FTSEurofirst 300 <> index of top European shares
fell 1.78 percent to close at 719.40 points.
"Citigroup was the main thing today," said Howard Wheeldon,
strategist at BGC Partners in London, "even though everybody
knew it's been coming for a while."
The deal is "a creeping step towards full nationalization,"
he said.
Lloyds <LLOY.L> fell 22.3 percent after it unveiled a big
loss for 2008 and said it had not yet finalized details of its
plan to put billions of pounds of assets into a UK
government-backed insurance scheme.
(Reporting by Richard Valdmanis, John Parry, Vivianne
Rodrigues, Frank Tang in New York and Naomi Tajitsu and Brian
Gorman in London; writing by Herbert Lash; Editing by Leslie
Adler)
