(Updates with late U.S. markets trade)
By Burton Frierson
NEW YORK, Jan 25 (Reuters) - Wall Street retreated on
Friday, putting aside a global equities rebound on fears that
Washington's plan to bolster the U.S. economy would not prove
an instant cure for the world's credit-stressed financial
system.
Other markets took a more optimistic view on the
initiative, as the dollar rose on bets that the U.S. Federal
Reserve may be less aggressive in cutting rates in a rising
economy and oil prices also advanced.
The stock market decline, after solid early gains, pushed
back Europe's rally, as the warm glow over the U.S. economic
package that emerged on Thursday and a strong earnings report
early in the day from Microsoft Corp <MSFT.O> faded into
renewed uncertainty.
In volatile global equity markets, investors once again
began fretting over fears of more surprises lurking in the
troubled financial sector, amid efforts by U.S. officials this
week to bolster the weakened bond insurance business.
Investors have worried that the declining fortunes of bond
insurers could cause deeper financial losses on top of last
year's mortgage debacle and deal a further blow to beaten down
stocks and the beleaguered U.S. economy. The markets were
unsettled again Friday as analysts began circulating estimates
that as much as $200 billion may be needed to make the insurers
whole.
Investors remained rattled as well by lingering recession
fears that have pummeled world stocks, though many took comfort
from the fact that some of the worst falls at the start of the
week were the anomalous result of a rogue trader in France, not
the sign of systemic meltdown.
"We've have had sharp rallies (from recent lows) and are
giving back some," said Peter Boockvar, equity strategist at
Miller Tabak & Co., in New York.
By late New York trade, benchmark indexes were down. The
Dow Jones industrial average <> fell 171 points, or 1.4
percent. The Standard & Poor's 500 Index <.SPX> was down 121.5
points, or 1.6 percent. The Nasdaq Composite Index <>
slid 35 points, or 1.5 percent.
"The extreme optimism of the past two days was a bit
misplaced," said Michael James, senior trader at regional
investment bank Wedbush Morgan in Los Angeles. "The economic
backdrop hasn't changed and there is still a high level of
nervousness about any headlines that reinforce there is still
reason to be concerned about the market's direction."
BONDS FEED ON TURMOIL
Disappointment among equities investors translated into
solid gains for safe-haven government bonds, pushing U.S.
Treasury debt prices higher and, therefore, yields lower.
The benchmark 10-year U.S. Treasury note <US10YT=RR> gained
35/32, pushing the yield down to 3.5808 percent. The 2-year
U.S. Treasury note <US2YT=RR> was up 6/32, with the yield at
2.2065 percent.
In currencies, the dollar rose broadly as investors scaled
back bets for another dose of aggressive Federal Reserve
monetary easing. Optimism that the $150 billion stimulus
package would support the U.S. economy also helped.
The greenback gained against a basket of major
trading-partner currencies, with the U.S. Dollar Index <.DXY>
up 0.40 percent at 75.991 from a previous session close of
75.692.
The dollar also pushed the euro <EUR=> down 0.66 percent to
$1.4668 from a previous session close of $1.4766. Against the
Japanese yen, the dollar <JPY=> was up 0.14 percent at 107.04
from a previous session close of 106.89.
In energy and commodities, U.S. crude oil futures <CLc1>
rose $1.25, or 1.4 percent, to $90.66 per barrel. Gold prices
<XAU=> rose $6.00, or 0.66 percent, to $913.00.
EUROPE AND JAPAN
European stocks ended flat, and down 2 percent for the
week, as a steep slide in shares of financial group Fortis
<FOR.AS> on market talk of a profit warning was offset by a
rise in tech stocks.
The FTSEurofirst 300 <> index of top European shares
finished unchanged on the day at 1,330.42 points. It is down
11.7 percent this year but 8.8 percent above the 14-month low
hit in intra-day trading as recently as Wednesday.
In Tokyo, the benchmark Nikkei <> closed up 4.1
percent and the broader TOPIX <> finished up 4.7 percent,
both marking their biggest one-day gains since March 4, 2002 --
when both surged on a government crackdown on short sellers.
(Reporting by Burton Frierson. Editing by Richard Satran)
