(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Feb 29 (Reuters) - U.S. and European stocks slid
for a fourth straight month 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 set a historic record on its march to $1,000 an ounce
and U.S. Treasury prices rose broadly as UBS said losses from
the global credit crisis will top $600 billion.
The yield on the two-year Treasury <US2YT=RR> note fell to
its lowest since early 2004, while the three big U.S. stock
indices posted their largest single-day declines since a plunge
in early February.
Inflation fears came to the fore 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 U.S.
Midwest added more gloom to the bleak economic outlook.
"This is just the latest piece of evidence that the U.S.
economy is teetering on the edge of recession," said Chris
Rupkey, senior financial economist at Bank of Tokyo/Mitsubishi
in New York, referring to Midwest business conditions.
"That's what's driving the rally in bonds and the sell-off
in stocks."
The Dow Jones industrial average <> skidded 315.79
points, or 2.51 percent, to 12,266.39. The Standard & Poor's
500 Index <.SPX> fell 36.96 points, or 2.70 percent, to
1,330.72, and the Nasdaq Composite Index <> lost 60.09
points, or 2.58 percent, to 2,271.48.
American International Group <AIG.N>, whose shares fell
6.56 percent, was the top drag on the Dow. The insurer posted a
record $5.29 billion quarterly loss late on Thursday. It was
the latest company to report huge write-downs due to the
subprime crisis that AIG said put it in "uncharted waters" that
were likely to remain choppy through 2008.
For the month, the Dow was off 3 percent, and the S&P off
3.5 percent, bringing its losses since markets peaked in
October to about 15 percent.
U.S. Treasury debt prices surged, testament to the
heightened levels of fear amid a credit crisis that shows no
sign of abating.
Two-year notes <US2YT=RR>jumped 10/32 for a yield of 1.65
percent, the lowest since early 2004. That yield was down 38
basis points this week alone. Benchmark 10-year notes
<US10YT=RR> gained 1-4/32, pushing their yield down to 3.53
percent from 3.67 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 1.0410
Swiss francs <CHF=>, while the dollar touched a three-year low
against the yen at 103.83 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 just below $102 a barrel, back from a record
high reached due to supply disruptions
U.S. crude <CLc1> settled down 75 cents at $101.84 a barrel
after hitting a record $103.05 earlier in the session. London
Brent crude <LCOc1> settled 80 cents lower to $100.10 a barrel,
off an all-time high of $101.27.
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 consecutive 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.
"It looks very likely that we will go above $1,000," said
Michael Lewis, global head of commodities research at Deutsche
Bank in London.
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 Caroline Valetkevitch, Kevin
Plumberg, Nick Olivari and Ellen Freilich in New York and Alex
Lawler and Atul Prakash in London)
(Reporting by Herbert Lash; Editing by Dan Grebler)
