(Recasts with U.S. markets, changes dateline; previous
LONDON)
By Herbert Lash
NEW YORK, Feb 29 (Reuters) - U.S. stocks headed to their
fourth straight monthly decline on Friday as the alarm bells of
a U.S. recession rang louder, pushing the dollar to record lows
while oil prices surged past a high set in 1980.
Gold also spiked, climbing above $975 an ounce, and U.S.
Treasury prices rose broadly, with the yield on the two-year
note falling to its lowest since early 2004 as investors found
little to cheer amid the weak economic data.
Stocks in Europe closed lower, with a benchmark index of
top European shares posting its fourth monthly decline, a fall
likely to be matched by U.S. stocks, with major U.S. indexes
down about 1.7 percent around midday.
Inflation pressures were evident in government data
indicating consumers were struggling in January to keep ahead
of robust price growth, which remained uncomfortably high.
A drop in U.S. consumer confidence to a 16-year low and a
contraction in business activity in the auto-intensive Midwest
added to the bleak economic outlook.
"It looks like there's been a reversal of fortune for the
manufacturing sector from last month and the economy appears to
have fallen off a cliff," said Chris Rupkey, senior financial
economist at Bank of Tokyo/Mitsubishi in New York, referring to
a Chicago report on regional business conditions.
"This is just the latest piece of evidence that the U.S.
economy is teetering on the edge of recession."
A $5.29 billion quarterly loss at American International
Group <AIG.N>, whose shares fell more than 6 percent, showed
the U.S. housing meltdown is crushing balance sheets in the
financial sector.
Insurer AIG was the top drag on the blue-chip Dow and the
broad S&P 500.
The Dow Jones industrial average <> was down 208.57
points, or 1.66 percent, at 12,373.61. The Standard & Poor's
500 Index <.SPX> lost 23.69 points, or 1.73 percent, at
1,343.99. The Nasdaq Composite Index <> was off 39.19
points, or 1.68 percent, at 2,292.38.
A CNBC report on a snag in efforts to rescue troubled bond
insurer Ambac Financial Group Inc <ABK.N> added to the negative
tone on Wall Street. Ambac was off 4.75 percent. An Ambac
bail-out would be an important step in restoring confidence in
the battered credit market.
U.S. Treasury debt prices were higher, with the benchmark
10-year U.S. Treasury note <US10YT=RR> up 20/32 and its yield
at 3.5958 percent. The 2-year U.S. Treasury note <US2YT=RR> was
up 4/32, yielding 1.7355 percent. The 30-year U.S. Treasury
bond <US30YT=RR> gained 26/32, its yield at 4.4662 percent.
European shares fell for a third day as the weak U.S. data
deepened fears of recession, hitting the banking sector. But
insurer Swiss Re <RUKN.VX> rallied after its results.
The FTSEurofirst 300 index <> fell 1.4 percent to
1,315.28, bringing losses in February to more than 1 percent
and for the year to about 10 percent.
The dollar lingered near record lows against the euro,
Swiss franc and a basket of major currencies, pressured by U.S.
economic concerns and expectations of further aggressive
interest rate cuts by the Federal Reserve.
The euro <EUR=> set a record high at $1.5238, according to
Reuters data, while the dollar index <.DXY> hit a record low of
73.560.
The dollar/Swiss franc also hit a historic low at 1.0427
Swiss francs <CHF=> while the dollar touched a three-year low
against the yen at 103.84 yen <JPY=>.
"Data shows that inflation pressures are beginning to
uptick, but this is not going to change the view the next move
by the Fed will be an interest rate cut," said Matthew Strauss,
a currency strategist at RBC Capital Markets in Toronto.
"The dollar is under a lot of pressure, and, given the
extreme low valuations, I wouldn't be surprised to see a minor
technical rally soon. But the underlying sentiment is still
very dollar-bearish," he added.
Oil fell to near $102 a barrel, back from a record high
reached due to supply disruptions
The latest jump, which sent U.S. crude above the
inflation-adjusted high of $102.53 hit in 1980, followed the
shutdown of an oil pipeline in Ecuador and a fire at a European
natural gas plant.
Gold <XAU=> set a record for the third straight day,
hitting $975.90 an ounce, propelled by speculative buying on
the back of record high oil and a lifetime-low dollar against
the euro. Gold's gains were pared later as some investors took
profits, but market sentiment remained bullish.
Silver jumped to a 27-year peak near $20 an ounce before
falling, while palladium surged nearly 4 percent to its highest
in more than six years.
(Additional reporting by Cal Mankowski, Kevin Plumberg and
Nick Olivari in New York and Amanda Cooper, Alex Lawler, Atul
Prakash in London)
(Reporting by Herbert Lash; Editing by Dan Grebler)
