(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, March 7 (Reuters) - Federal Reserve efforts to
loosen up tight lending markets did little to calm frayed
investor nerves on Friday, as global stocks stayed on a
downward track amid fears credit problems are deepening.
Equities declined from the start of the New York session on
recession fears sparked by a U.S. Labor Department report
showing the biggest drop in U.S. non-farm payrolls in nearly
five years. The Fed move to inject $200 billion of cash into
the banking system sparked a short-lived stock rally.
Gold erased initial gains to finish lower amid talk that
cash-squeezed funds sold bullion for liquidity, capping a
volatile week which saw gold made several runs toward $1,000 an
ounce.
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 jobs data, higher oil and credit crisis roiling the
financial system all cast a long shadow on markets.
"We have a long way to go until the economy is back up and
running at full-tilt. You're looking for a silver lining and
you just can't find it," said Edward Bretschger, director of
equity sales and trading at Calyon Securities in New York.
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
stocks.
Energy companies also felt the pinch of slower growth
concerns, even with oil setting 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 industrials <> ended below 12,000, a technical
break-point that has closed blow that level only once before in
the past 16 months. The Standard & Poor's 500 <.SPX> closed
below 1,300 for the first time since September 2006.
Companies linked to the meltdown in mortgage-backed
securities found a difficult time raising cash.
Bond insurer Ambac Financial Group Inc <ABK.N> sold $1.5
billion of shares and convertible debt at fire-sale prices to
protect it from rating downgrades, but not satisfying some
analysts who wanted the company to raise more capital.
Another mortgage concern under pressure, Thornburg Mortgage
Inc <TMA.N> on said its survival is at stake after it was
unable to meet $610 million of margin calls.
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.
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 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 euro later traded around $1.5345, down 0.3 percent on
the day as investors considered the outlook on U.S. interest
rates.
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 73.039.
Gold eased as platinum and palladium pulled back sharply on
U.S. recession fears in a broad-based commodities sell-off.
"Gold is having trouble here, as it bounced off the $990
area again. It was up sharply but ended lower at the end. To
me, it's very negative sign," said Leonard Kaplan, president of
Prospector Asset Management at Evanston, Illinois.
"It seems like people are getting out of everything because
the hedge funds that are long gold are having troubles in other
areas and they need to sell to raise cash," Kaplan said.
Gold <XAU=> rose as high as $988 an ounce in morning trade
but was at $972.60/973.40 by New York's last quote at 2:15 p.m.
EST (1915 GMT), against $976.20/976.95 late in New York on
Thursday, when it hit a record high of $991.90.
Oil prices eased off a new record after buying by
speculators hedging against the weaker dollar and inflation
sent prices above $106 a barrel.
U.S. oil <CLc1> settled down 32 cents at $105.15 a barrel,
trimming gains after hitting an all-time high of $106.54
earlier in the trading session. London Brent <LCOc1> crude
settled 23 cents lower at $102.38 a barrel.
(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)
