(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, March 7 (Reuters) - Federal Reserve efforts to
ease tight credit markets did little to calm frayed investor
nerves on Friday, as stocks in Europe and the United States
fell to six-week lows while oil climbed to new highs.
The markets got a fresh jolt of recession worries when the
U.S. Labor Department reported the biggest drop in U.S. nonfarm
payrolls in nearly five years. A Fed move to add liquidity
through a $200 billion injection of cash to the banking system
helped a recovery rally but the market sagged as the session
wore on.
Gold, which neared $1,000 this week for the first time,
steadied in late European trade after rising more than 1
percent after the dollar hit record lows early in the day and
then recovered
.
Oil in New York and London rallied to record highs, lifted
by technical buying as the weak dollar kept funds flowing into
inflation hedges like crude futures.
While Fed efforts to ease credit markets may succeed, the
second consecutive monthly decline in payrolls suggested the
U.S. central bank will have to continue to aggressively cut its
benchmark interest rate to bolster the economy.
"The numbers today push us that much closer to a full-blown
recession and perhaps inflation expectations as a result of
that have come down a little bit," said Stephen Stanley, chief
economist with RBS Greenwich Capital Markets in Greenwich,
Connecticut.
"The steps that the Fed took this morning have provided a
backstop liquidity-wise to the market," Stanley said.
Big industrial companies seen as economic bellwethers such
as heavy-equipment maker Caterpillar <CAT.N> and conglomerate
General Electric <GE.N> were among the biggest drags on Wall
Street.
Energy companies also felt the pinch from economic
concerns, even as oil set a record high. Exxon Mobil <XOM.N>
and Chevron <CVX.N> weighed on the benchmark Standard & Poor's
500 Index and the Dow Jones industrial average.
The Dow <> was down 113.97 points, or 0.95 percent, at
11,926.42. The S&P 500 <.SPX> was down 9.29 points, or 0.71
percent, at 1,295.05. The Nasdaq Composite Index <> was
down 8.51 points, or 0.38 percent, at 2,211.99.
Struggling bond insurers also were in the spotlight. Shares
of Ambac Financial Group Inc <ABK.N> fell 5.9 percent to $6.98
after it sold $1.5 billion of shares and convertibles to
protect the company's credit ratings. Investors who wanted the
company to raise more were disappointed that a strategic buyer
did not appear to bail out Ambac with a fund injection.
European shares hit their lowest close in more than six
weeks after data showed the U.S. labor market was struggling,
but a rebound in U.S. stocks helped pare losses.
The FTSEurofirst 300 <> index of top European shares
closed down 1.1 percent at 1,269.42 points, its lowest close
since Jan. 23. Earlier, the index fell to 1,258.27.
Dutch-Belgian concern Fortis became the latest among the
world's biggest financial groups to post losses from exposure
to subprime-related debt.
Profit fell in half in the fourth quarter after a 1.5
billion euro ($2.3 billion) subprime write-down. But Fortis,
without providing further details, said it was in talks on a
deal that would boost its solvency.
Swiss wealth manager EFG International took a hit from the
credit crisis and its shares fell sharply after it reported a
fund of U.S. municipal bonds it was distributing had to be
liquidated, causing losses for investors.
EFG shares fell 6.38 8 percent at 34.50 Swiss francs, after
plunging 18 percent earlier in the day.
MSCI's main world stock index <.MIWD00000PUS>, a benchmark
for many professional investors, lost 1.3 percent while its
emerging market counterpart <.MSCIEF> sank 2.3 percent.
The dollar rebounded from record lows it hit as dropped on
the surprise contraction in U.S. payrolls.
The euro surged to $1.5459 <EUR=>, according to Reuters
data, as investors took fright at news that U.S. payrolls
shrunk again in February.
The New York Board of Trade's dollar index, which tracks
the dollar's performance against the basket of currencies,
slumped to an all-time low of 72.462 <.DXY>. It later rebounded
to around 73.055.
Gold steadied as platinum and palladium pared losses after
falling sharply on expectations that South African power
problems might improve in the coming weeks, analysts said.
Gold <XAU=> rose as high as $988 an ounce after the data
but fell to $976.00/976.80 at 1523 GMT, against $976.20/976.95
late in New York on Thursday, when it hit a record high of
$991.90.
"Compared with what it has done before, gold has slightly
underperformed in the last week," said Stephen Briggs,
economist at SG Corporate and Investment Banking.
"There is a huge uncertainty in the market after these
massive gains we have seen this year. People are getting a bit
nervous of the logic of such high prices in an environment of
the U.S. remorselessly heading into a recession."
Oil rallied to new highs. Crude futures had earlier dropped
sharply after a weak jobs report, suggesting demand may
decline. But geopolitical tensions and supply concerns after
U.S. inventories fell last week also supported crude.
April crude <CLJ8> in New York jumped to a new record of
$106.54, up from $103.91 and eclipsing Thursday's $105.97
peak.
Bonds were little changed as the weak economy news vyed
with the Fed's credit bolstering action for investor attention.
The benchmark 10-year note <US10YT=RR> slipped 3/32 in price
for a yield of 3.61 percent, up from 3.59 percent late
Thursday. The 10-year yield fell to the lowest since late
January immediately after the payrolls data, at about 3.49
percent.
(Reporting by Caroline Valetkevitch, Lucia Mutikani and Kevin
Plumberg in New York and Ana Nicolaci da Costa, Jane Merriman
and Atul Prakash in London)
(Writing by Herbert Lash. Editing by Richard Satran)
