(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, March 26 (Reuters) - U.S. and European stocks
slid on Wednesday on new fears about more write-downs facing
banks on both sides of the Atlantic and amid fresh signs that
the U.S. economy has stalled and a housing slump continues.
European central bankers warned there was no end in sight
to the global credit crunch.
U.S. Treasury debt prices rose and the dollar fell for a
second session after an unexpected drop in durable goods orders
heightened worries about the U.S. economy's health, raising
expectations the Federal Reserve would cut interest rates
further.
Oil jumped $4 a barrel after a U.S. government report
showed larger-than-expected drops in fuel stocks in the United
States, the world's top consumer. Gold hit a one-week high as
the weak dollar and rising oil encouraged investors to venture
back into metals.
Deutsche Bank <DBKGn.DE> said the global credit crisis
threatened its profit target for this year, and U.S. and
European officials pointed to the U.S. housing market as the
key to any economic and financial turnaround.
European Central Bank President Jean-Claude Trichet said
the turbulence that has gripped financial markets since last
summer would probably last until the U.S. housing market
cleared.
Bank of England Governor Mervyn King was equally downbeat,
saying the credit crunch had entered a new phase.
U.S. Treasury Secretary Henry Paulson said housing prices
needed to be allowed to continue to drop for now.
FINANCIAL SHARES TOP DRAGS
Financial stocks both in Europe and the United States were
the biggest drags on major indexes, reflecting gloom over
credit markets and a fresh downgrade of four big U.S. banks by
prominent Oppenheimer & Co analyst Meredith Whitney.
"The reason the financials are down are because of Deutsche
Bank talking negative about its 2008 forecast," said Michael
James, senior trader at regional investment bank Wedbush Morgan
in Los Angeles, adding that Whitney's note also had an impact.
The Dow Jones industrial average <> was down 126.10
points, or 1.01 percent, at 12,406.50. The Standard & Poor's
500 Index <.SPX> was down 12.79 points, or 0.95 percent, at
1,340.20. The Nasdaq Composite Index <> was down 27.46
points, or 1.17 percent, at 2,313.59.
Whitney lowered her first-quarter profit forecasts for
Citigroup <C.N>, Bank of America Corp <BAC.N>, JPMorgan Chase
<JPM.N> and Wachovia Corp <WB.N>. She said that although she
has cut estimates for financial companies more than 30 times
since November that she expects more cuts this year.
Citigroup fell 5 percent to $22.24, Bank of America shed
2.7 percent to $39.84 and JPMorgan lost 3.3 percent to $44.52.
The day's U.S. economic data raised concerns about
corporate profits and pushed stocks lower.
Sales of new U.S. single-family homes fell to the slowest
pace in 13 years while orders for durable goods tumbled
unexpectedly last month.
New orders for manufactured goods fell 1.7 percent during
February and a key gauge of business investment also shrank.
Weaker spending suggests the economy may contract more sharply
than initially thought in the first quarter.
BANKS, XSTRATA WEIGH IN EUROPE
European stocks slipped, giving up some of the previous
session's sharp gains. Anglo-Swiss miner Xstrata sank 7 percent
after takeover talks with Brazil's Vale broke down and the
financial sector was again the session's biggest losers.
Xstrata <XTA.L> was Europe's biggest laggard, closing down
5.22 percent after having fallen as as 12.3 percent.
Among banks, Deutsche Bank <DBKGn.DE> fell 1.45 percent.
The FTSEurofirst 300 index <> of top European shares
lost 0.6 percent to close at 1,258.44 points. The index is on
track to record its weakest quarterly performance since the
third quarter of 2002 and its fifth monthly loss in a row.
The weak economic news helped create a small safety bid for
U.S. government bonds.
"It's very clear that this credit crisis is now washing
into the business sector," said William Sullivan, chief
economist at JVB Financial Group. "We've seen weakness in
housing and consumer spending and now it appears as if
corporate investment spending is weakening as well."
In midday trade, the benchmark 10-year Treasury note price
<US10YT=RR>, which moves inversely to its yield, was up 3/32,
its yield at 3.50 percent.
Two-year notes <US2YT=RR> were up 1/32 in price, their
yields easing to 1.76 percent from 1.78 percent late on
Tuesday.
Oil extended an earlier gain after a U.S. government report
showed larger-than-expected drops in U.S. fuel stocks. Stocks
had been expected to rise by 1.7 million barrels last week, but
were unchanged.
U.S. crude <CLc1> rose $4.02 to $105.24 a barrel by 1524
GMT, extending the 36-cent gain on Tuesday. It has fallen from
a record high of $111.80 reached on March 17. London Brent
<LCOc1> added $2.87 to $103.47.
Gold hit a one-week high above $950. Gold <XAU=> rose to a
high of $950.20 an ounce and was quoted at $947.30/948.20 at
1459 GMT, against $934.60/935.40 late in New York on Tuesday.
The dollar fell for a second straight session and managed
to trim losses against the yen after a slightly
better-than-expected U.S. new home sales report for February.
But the data did little to ease concerns about the
beleaguered sector.
"Everyday we have confirmation that the European Central
Bank will keep interest rates on hold, while the U.S. economy
is in pretty bad shape and that means lower rates," said Rafael
Martorell, chief dealer, at BNP Paribas in New York.
In midday trading, the euro rose 0.7 percent against the
dollar to $1.5736 <EUR=>, less than 2 cents away from its
record high at $1.5905 hit last week. Against the yen, the
dollar fell 1 percent to 99.080 yen <JPY=>.
The dollar dropped 0.9 percent against the Swiss franc at
0.9967 francs <CHF=>.
Earlier in Asia, Japan's Nikkei <> ended down 0.3
percent, but MSCI's measure of other Asian stock markets
<.MIAPJ0000PUS> climbed 0.7 percent.
(Additional reporting by Justin Grant, Ellen Freilich,
Gertrude Chavez-Dreyfuss in New York and Ana Nicolaci da Costa,
Alex Lawler and Atul Prakash in London; Editing by Leslie
Adler)
(Writing by Herbert Lash)
