* Dow, S&P 500 post worst month in January on record
* U.S. GDP, euro zone inflation, Japanese data weigh
* Oil settles up on signal of more possible OPEC cuts
* Euro tumbles on weak euro zone inflation data
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Jan 30 (Reuters) - Investors fled to the safety
of gold and government debt on Friday as news of more economic
weakness worldwide rattled markets and led the benchmark S&P
500 and Dow to their worst monthly declines in January ever.
The Dow Jones industrial average closed down 8.8 percent
for January, a month that often is a harbinger for the rest of
the year's performance. The broader S&P 500, considered the
benchmark U.S. index among investors, fell 8.6 percent for the
month.
Gold jumped more than 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.
A plunge in euro zone inflation, a record fall in Japanese
industrial production and the most severe shrinking of the U.S.
economy in nearly 27 years heightened fears that the global
downturn could be worst than many had feared.
The Dow <> fell 148.15 points, or 1.82 percent, at
8,000.86. The Standard & Poor's 500 Index <.SPX> shed 19.26
points, or 2.28 percent, at 825.88. The Nasdaq Composite Index
<> lost 31.42 points, or 2.08 percent, at 1,476.42.
World stocks, as measured by MSCI's all-country index
<.MIWD00000PUS>, fell 2 percent on Friday and closed down about
8.6 percent for the month.
U.S. stocks, led by financials, tumbled after CNBC reported
that tentative U.S. government plans to mop up toxic assets by
placing them in a "bad" bank were on hold.
"The banking system is still in crisis mode," said Dean
Barber, president of investment firm Barber Financial Group in
Kansas City. "We're in for another tough year."
Sparking an initial slide in equities was a report that
showed U.S. gross domestic product fell at a 3.8 percent annual
rate in the fourth quarter, not as bad as economists expected.
But business equipment and software spending plunged 27.8
percent and exports fell 19.7 percent, indicating the first
quarter will be tougher than many economists had thought.
"That amount of inventory accumulation is not voluntary
because businesses couldn't sell as much as they want," said
William Cheney, chief economist at John Hancock Financial in
Boston. "If these numbers hold up, that means the first quarter
will be worse. This is postponing the day of reckoning."
In news that unsettled investors, Procter & Gamble Co
<PG.N>, the world's largest consumer products maker, reported
profit that missed expectations. Because P&G sells products
people must buy, it is seen as less vulnerable than others.
P&G was the Dow's biggest drag, off 6.4 percent.
European shares gyrated in a choppy session. The
pan-European FTSEurofirst 300 index <> closed little
changed, up 0.03 percent at 796.76 points.
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=> fell 1.39 percent at $1.2778.
The dollar was on track for its best month since October
versus the euro, as signs of a prolonged slump on both sides of
the Atlantic added to the greenback's appeal as a safe haven.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.62 percent at 86.019. Against
the yen, the dollar <JPY=> gained 0.03 percent at 89.96.
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 0.3 percent.
The benchmark 10-year U.S. Treasury note <US10YT=RR> gained
4/32 in price to yield 2.85 percent. The 30-year U.S. Treasury
bond <US30YT=RR> rose 8/32 in price to yield 3.60 percent.
Oil futures rose after the Organization of Petroleum
Exporting Countries signaled it may deepen its record output
cuts. U.S. crude <CLc1> rose 24 cents to settle at $41.68 a
barrel. London Brent crude <LCOc1> settled up 48 cents at
$45.88 a barrel.
Gold rallied to a near four-month high. U.S. gold futures
for April delivery <GCJ9> settled up $21.90 at $928.40 an ounce
in New York.
(Reporting by Ellis Mnyandu, 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 Kenneth Barry)
