* Short-lived rally for stocks upended by bank woes
* Dollar mixed, British pound hammered
* Oil down in volatile trade
By Daniel Bases
NEW YORK, Jan 16 (Reuters) - The government gave and the
market took away on Friday, as a plunge in bank shares in the
U.S. and Europe overwhelmed the positive sentiment created by
the U.S. government's $20 billion capital infusion into Bank of
America.
Washington's decision, which includes the sharing in losses
on $118 billion worth of mortgages, was announced during Asian
trading hours and sparked a rally for shares there that
extended through much of the European session before running
out of fuel.
Oil prices were pushed and pulled between forecasts of
lower demand and the impact of cold weather in most of the
United States. The downturn in stocks contributed to a cut in
losses for safe-haven U.S. Treasuries as risk appetite ebbed.
Bank of America <BAC.N> posted its first quarterly loss in
17 years on the heels of the government's midnight announcement
of a fresh round of aid to help the largest U.S. bank absorb
its Jan. 1 purchase of troubled brokerage Merrill Lynch & Co.
"Coming into 2009, we thought we had the big bailouts past
us as far as the financials are concerned, and that we can take
TARP money and pit it toward something else," said Matt McCall,
president of Penn Financial Group in Ridgewood, New Jersey.
"Now it's clear that there could be more big banks coming
back to the well, asking the government for money. And when
does this end and when do they say no? They just keep writing
checks," he added.
Citigroup, the former No. 1 and now No. 3 in U.S. banking,
reported a fourth quarter loss of $8.29 billion. Over the past
15 months Citigroup has amassed an astounding $92 billion in
losses. The bank announced plans to split itself in two and
shed troubled assets.
Citigroup <C.N> shares lost 1.04 percent to $3.79.
Bank of America's stock fell 14.9 percent to $7.08. The
share prices had risen initially on the news of the bailout
funds but the size of their quarterly losses -- $15.31 billion
for Merrill Lynch and $1.79 billion for Bank of America -- and
the need for more funds unsettled investors.
Similar uneasiness hit UK banking shares just prior to the
European close of stock trading, which is thought to have
contributed to a drubbing for the British pound. Sterling
dropped from a high of $1.4980 to $1.4660, roughly unchanged on
the day <GBP=>.
In London, Barclays Plc <BARC.L><BCS.N> shares fell 24.85
percent while Royal Bank of Scotland lost <RBS.L> 13 percent.
U.S. listed shares of Barclays were down 26.19 percent.
Several equity traders contacted by Reuters could not
identify a specific reason for the late slide in Barclays or
any of the stocks, but cited several rumors including worries
about the impact of a UK rescue plan being discussed, executive
departures, writedowns and capital.
Also, a British ban on short selling of financial stocks
expired on Friday.
"The shorting ban has been lifted and I guess the short
guys have been sharpening their tools and looking to see who
they'll have to pop at next," said Numis Securities analyst
James Hamilton.
In midday New York trade, the Dow Jones industrial average
<> was down 53.05 points, or 0.65 percent, at 8,159.44. The
Dow had been up as much as 1 percent in early trade.
The Standard & Poor's 500 Index <.SPX> dropped 6.53 points,
or 0.77 percent, to 837.21. The Nasdaq Composite Index <>
lost 9.86 points, or 0.65 percent, to 1,501.98.
European share gains were cut by the close, though major
indexes ended the week on a high note.
The FTSEurofirst 300 <> index of top European shares
ended up 1 percent at 803.90 points. However for the week the
index fell 7.3 percent.
Commodity related shares were among the biggest gainers,
with mining and oil shares such as Xstrata <XTA.L> adding 6
percent, Total <TOTF.PA> rising 1.1 percent and Rio Tinto
<RIO.L> gaining 7.6 percent.
Japan's benchmark Nikkei 225 index <> rose 2.6 percent
in the early hours of the rescue plan. The retreat in the yen
also helped lift shares of exporters such as Honda Motor Co
<7267.T> which gained 7.95 percent. A weaker yen makes Japanese
exports more competitive globally.
The dollar, while down against a basket of currencies,
managed to gain on the yen, rising 0.69 percent to 90.40 from a
previous session close of 89.780 <JPY=>.
The euro however rose 0.72 percent to $1.3248 from a
previous session close of 1.3153 <EUR=>.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 35/32, with the yield at 2.3171 percent.
Investors sold longer-dated euro zone government bonds a
day after driving the benchmark 10-year yield to an historic
low. March German bund futures <FGBLc1> fell 52 ticks on the
day at 125.65, and well off the historic high of 126.53 reached
on Thursday.
In energy and commodities prices, U.S. light sweet crude
oil <CLc1> fell 2.09 percent, to $34.66 per barrel, and spot
gold prices <XAU=> rose 2.75 percent, to $837.80 an ounce.
(Additional reporting by Reuters bureaus around the world,
Editing by Chizu Nomiyama)
