(Updates with more on oil)
* Dow ends below 10,000; U.S. stocks fall on China report
* Euro dips on euro-zone debt fears
* U.S. Treasury prices fall on weak government auction
By Manuela Badawy
NEW YORK, May 26 (Reuters) - U.S. stocks and the euro
ended lower on Wednesday, with the Dow closing below 10,000
for the first time since early February, after a report said
China was reviewing its euro-zone debt holdings -- feeding
investors' concerns that the European debt crisis could
reverse the global economic recovery.
Gold prices rose about 1 percent, building its best
three-day gain since January as dealers hedged against
Europe's sovereign debt problems and took advantage of the
desire for asset protection.
Stocks lost their day's gains late in New York session on
investors' worries after Britain's Financial Times newspaper
said China is reviewing its euro-zone bond holdings because of
growing concern about gaping deficits in euro-zone member
countries, including Greece and Portugal. []
The Dow slipped below 10,000, with the late turnaround in
stocks showing investor psyche is still fragile.
The euro slid 1.6 percent to $1.2169, close to a four-year
low hit last week. The single European currency was stung by
concerns about tighter dollar funding, with three-month dollar
interbank rates hitting a fresh 10-month high. Poor demand at
a German debt auction also weighed, analysts said. For more
see [] and [].
Oil prices however, settled above $71 a barrel, climbing 4
percent in the biggest one-day increase in nearly eight
months, due to an improvement in risk appetite and a big
increase in U.S. oil demand. [] U.S. July crude
futures <CLc1> shot up $2.76 to settle at $71.51 a barrel.
U.S. June gold futures ended at $1,213.40 an ounce, up 1.3
percent, or a gain on the day of $15.40.
"It is not as if the market needs new reasons to be
bearish the euro, but the news that the market seems to be
reacting to now is a Financial Times piece claiming,
apparently without attribution, that China's State
Administration of Foreign Exchange (SAFE) is reviewing its
holdings of European bonds," Marc Chandler, global head of
currency strategy at Brown Brothers Harriman in New York, said
in a note.
UNDERSTANDING CHINA
Stock market investors were pushed by the FT report to
take some profits, driving the Dow Jones industrial average
<> to drop 69.30 points, or 0.69 percent, to close at
9,974.45.
The Standard & Poor's 500 Index <.SPX> fell 6.08 points,
or 0.57 percent, to end at 1,067.95. The Nasdaq Composite
Index <> lost 15.07 points, or 0.68 percent, to finish at
2,195.88.
"One rule that we have found is useful when trying to
(put) one's head around China is that China does not leak.
This would be, it seems, a leak. Therefore, while we suspect
all investors must be thinking about what is happening in the
euro zone, we don't see this as really news," Chandler added.
Concerns over European bank funding, specially after Spain
took over a small savings bank, CajaSur, over the weekend,
have pushed investors to take profits and buy into safe-haven
assets.
In afternoon New York trading, the euro <EUR=EBS> fell
more than 1 percent to $1.2193/96, pulling back from a session
low of $1.2182 set on electronic trading platform EBS. The
euro hit a four-year low of $1.2143 on EBS last week and is
down about 15 percent so far this year.
Earlier in the session, the euro took another dive on
speculation a large Spanish bank has been struggling to roll
over $1 billion in short-term funding in the U.S. commercial
paper market.
A surge in U.S. durable good orders and new home sales for
April had boosted U.S. stocks and overall risk sentiment
earlier in the session, but did not help the euro.
[].
In recent weeks, the euro has become a proxy for risk
appetite, given Europe's debt crisis, rising or falling in
tandem with global stocks.
"The overarching themes remain the same. The market is
very fearful of the contagion factor and the debt issue
dragging on the economy over there," said John Doyle, foreign
exchange strategist at Tempus Consulting in Washington.
"We're still very bearish on the euro and very hawkish on
the dollar. It does appear that the economies in the euro zone
are in a much weaker position than here in the United States,"
he added.
EURO TALK
U.S. Treasury Secretary Timothy Geithner urged Europeans
on Wednesday to work for a globally consistent approach to
financial reform as the European Union said it might go it
alone with a plan to tax banks to pay for future rescues.
[].
European shares <> rebounded by 2.5 percent from
Tuesday's nine-month lows, but the euro <EUR=> remained under
pressure amid continuing signs of banks' reluctance to lend to
euro-zone counterparts exposed to southern European sovereign
debt.
Geithner's stress on coordination of new regulation
appeared aimed chiefly at Germany, Europe's biggest economy,
which stunned markets and angered its European Union partners
by unilaterally banning some speculative financial trades last
week. []
BONDS SLIP AFTER AUCTION
U.S. Treasuries prices fell on Wednesday, pulling
benchmark yields up from one-year lows, as the week's $113
billion worth of government bond auctions weighed on a market
that has rallied to rich levels recently.
Though the moves weren't dramatic, they suggested the
market had become pricey after weeks of safe-haven flows into
Treasuries and dollar assets as investors sought refuge from
the euro zone's debt crisis.
Overall demand for Treasury's $40 billion five-year
auction was a tad lower than last month and pricing suggested
that dealers were somewhat aggressive in bidding prices lower
to secure a yield premium. For details see [].
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 9/32, with the yield at 3.1922 percent. The 2-year U.S.
Treasury note <US2YT=RR> was down 1/32, with the yield at
0.8172 percent. The 30-year U.S. Treasury bond <US30YT=RR> was
down 22/32, with the yield at 4.0956 percent.
(Reporting by Burton Frierson, Wanfeng Zhou, Chuck
Mikolajczak and Gene Ramos; Writing by Manuela Badawy; Editing
by Jan Paschal)
