(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, May 9 (Reuters) - Oil's relentless surge to new
highs on Friday and a record $7.8 billion loss at AIG, the
world's largest insurer, rekindled concerns that the bite from
a credit crunch is not over, dragging down stocks around the
world.
A rise in oil to over $126 a barrel, the fifth straight
session of record gains, fueled fears that the high prices will
spread inflation throughout the economy.
Banking shares led stock markets lower in both the United
States and Europe after U.S. insurer American International
Group <AIG.N> reported a record-breaking $7.8 billion quarterly
loss late on Thursday as it wrote down assets linked to
subprime mortgages. AIG also said it would raise $12.5 billion
in new capital to strengthen its balance sheet.
News on Friday from Citigroup <C.N>, the top U.S. bank,
that it plans to shed $400 billion in assets also pressured the
financial sector.
"Over the past weeks, investors got the feeling that the
credit crisis was easing, but a piece of news like that is sort
of a wake-up call that reminds us that the storm is far from
over," said Marie-Pierre Peillon, head of equity and credit
research at Groupama Asset Management in Paris.
"This Citigroup move might just be the beginning."
Paul Nolte, director of investments at Hinsdale Associates
in Hinsdale, Illinois, voiced a similar sentiment: "Many more
financial institutions will be needing to raise capital to
shore up balance sheets."
In the U.S. stock markets, the Dow Jones industrial average
<> was down 108.04 points, or 0.84 percent, at 12,758.74.
The Standard & Poor's 500 Index <.SPX> was down 10.83 points,
or 0.77 percent, at 1,386.85. The Nasdaq Composite Index
<> was down 10.56 points, or 0.43 percent, at 2,440.68.
Shares of AIG fell 8.3 percent to $40.50, while Citigroup
lost 0.8 percent to $24.10
In Europe, shares fell, capping their first weekly loss in
a month, on renewed concern over the outlook for the financial
sector and the drag from the record high oil.
The FTSEurofirst 300 index <> of top European shares
fell 1.3 percent to close at 1,342.68 points. Declining shares
outnumbered advancers by about five to one.
The DJ Stoxx index of European banks <.SX7P> fell 1.7
percent, bringing this week's decline to 3.7 percent.
Societe Generale <SOGN.PA>, BNP Paribas <BNPP.PA> and
Barclays <BARC.L> each lost between 2 percent and 2.5 percent.
French drugmaker Sanofi-Aventis <SASY.PA> was the biggest
individual negative weight after the threat of generic
competition for its blockbuster blood-thinner Plavix surfaced
in Europe. Sanofi shares fell nearly 6 percent.
WORRIES BOOST GOVERNMENT DEBT
The renewed credit worries, prompted by the loss at AIG
boosted the appeal of safe-haven government debt on both sides
of the Atlantic, while the sagging stock markets helped bolster
low-yielding currencies such as the yen and led the dollar to
fall against most currencies on a rise in risk aversion.
Benchmark 10-year U.S. Treasury notes posted their best
week in nearly two months while the yield on 10-year Bunds fell
to their lowest in three weeks to below the key psychological 4
percent level.
"The rise in risk aversion is mostly AIG," said Ron
Simpson, director of FX research at Action Economics in Tampa,
Florida. "It's brought credit market nervousness back."
French industrial production fell 0.8 percent in March from
the previous month, a sharper drop than expected, according to
data which highlighted slowing growth in the euro zone.
"You get the feeling from the corporate sector that the
international credit crisis is taking its toll and this will
change the entire landscape of earnings forecasts, which for
the time being are still quite upbeat," said Heino Ruland, a
strategist for FrankfurtFinanz.
U.S. light sweet crude oil <CLc1> rose $1.08 to $124.77 per
barrel, off a record high of $126.20 a barrel.
London Brent crude <LCOc1> rose $1.41 to $124.25 per
barrel, after rising to $125.90.
London Brent crude rose $1.41 to $124.25 per barrel, after
rising to $125.90.
"At some point oil gets too high for them to make money,"
said Todd Leone, head of listed equity trading at Cowen & Co.
in New York. "The higher crude goes, the harder it is to pass
along higher prices to the consumer."
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 0.46 percent at 73.131.
The euro <EUR=> rose 0.32 percent at $1.5455, and against
the yen, the dollar <JPY=> fell 0.72 percent.
U.S. Treasury debt prices rose.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
8/32 to yield 3.75 percent. The 2-year U.S. Treasury
note<US2YT=RR> rose /32 to yield 2.22 percent. The 30-year U.S.
Treasury bond <US30YT=RR> rose 18/32 to yield 4.51 percent.
Spot gold prices <XAU=> fell 75 cents to $881.55.
Resurgent oil surge weighed on Asian shares and earnings
worries highlighted by Toyota comments pressured Japanese
exporters, sending Tokyo's Nikkei average <> down 2
percent.
Shares across the rest of Asia <.MIAPJ0000PUS> fell 0.5
percent.
(Reported by Jennifer Coogan, Richard Leong, Nick Olivari in
New York and Amanda Cooper, Atul Prakash, Santosh Menon and
Kirsten Donovan in London; Editing by Leslie Adler)
