* Global stocks drop in thin holiday trade, dollar mixed
* Record $38 bln 2-yr Treasury auction, market sags
* Euro zone industrial orders weak, Japan adds stimulus
(Updates prices to close, adds US Treasury auction)
By Daniel Bases
NEW YORK, Dec 22 (Reuters) - Investors were left with few
places to hide on Monday as world stocks dropped on further
evidence of a global economic slowdown and a record auction of
U.S. Treasuries flooded the market and weighed on prices.
In Europe, the deepest year-on-year drop in euro zone
industrial new orders in October further undermined investor
sentiment, while China trimmed interest rates for a fifth time
since mid-September in a bid to fend off an economic slowdown.
The MSCI world equity index <.MIWD00000PUS> was down 3.39
points or 1.5 percent to 221.88 at the New York close.
The world index rallied last week, recovering 20 percent
since November 21, when it hit the 5-1/2 year low. It is still
on track for its first monthly gain in December after six
successive months of losses.
Evidence of a deepening recession in Japan - a record
annual fall in Japanese exports in November - was compounded by
the world's top carmaker, Toyota Motor Co <7203.T> forecasting
its first ever group operating loss due to falling demand and a
strong yen. Toyota's shares fell 0.17 percent.
The U.S. dollar gained on the yen but faltered against the
euro. Doubts about whether a $17.4 billion U.S. automaker
bailout would steer the U.S. economy out of recession also
undermined the greenback.
"The dollar view is so opaque at the moment, and the risk
reward at this time of year is not worth it unless you really
have to trade," said Maurice Pomery, head of foreign exchange
at IDEAglobal in London.
The euro <EUR=> was up 0.21 percent at $1.3945 from a
previous session close of $1.3916. Against the Japanese yen,
the dollar <JPY=> was up 1.02 percent at 90.03 from a previous
session close of 89.120. The yen is up roughly 20 percent
against the dollar this year, making Japanese exports less
competitive.
The dollar was up against a basket of major trading-partner
currencies, with the U.S. Dollar Index <.DXY> up 0.13 percent
at 81.178 from a previous session close of 81.070.
The cold reality of new U.S. Treasury issuance to fund the
U.S. economic stimulus plans is wreaking havoc on the thinly
traded pre-Christmas holiday market.
The market absorbed a record $38 billion two-year note
auction, indicating sufficient demand, however investors bought
the debt at a discount to prevailing market prices.
Over the next year an estimated $1.5 trillion to $2
trillion in new Treasury issuance is expected, which is
weighing on long-dated maturities, especially.
On Monday the 10-year benchmark U.S. Treasury fell 10/32 of
a point in price, driving the yield up to 2.163 percent
<US10YT=RR>. The 30-year bond fell roughly 1-3/4 points in
price, putting the yield up to 2.618 percent <US30YT=RR>.
The Dow Jones industrial average <> fell 60.14 points,
or 0.70 percent, at 8,518.97. The Standard & Poor's 500 Index
<.SPX> lost 16.32 points, or 1.84 percent, at 871.56. The
Nasdaq Composite Index <> dropped 31.97 points, or 2.04
percent, at 1,532.35.
U.S. drug store chain Walgreen Co <WAG.N> posted a
smaller-than-expected fiscal first quarter profit profit and
again cut its store opening plans as consumers spend less.
Shares dropped $1.10 or 4.22 percent to $24.98. (For more,
click on [].)
GRIM DATA
The European Union's statistical office Eurostat reported
October industrial orders fell by 4.7 percent from September
for an annual fall of 15.1 percent, the deepest year-on-year
fall on record. A slump in demand for cars was the cause.
"In the first round it is the car sector, but in the second
round it will be the other sectors. For the ECB (European
Central Bank) there is no time to wait, they will cut interest
rates, that is clear. I expect 50 basis points in January,"
said Christoph Weil, economist at Commerzbank.
Markets are pricing in the ECB cutting interest rates to
1.50 percent from the middle of next year from 2.50 percent
currently <ECBWATCH>.
The FTSEurofirst <> index of top European shares fell
13.59 points or 1.65 percent to 809.78. European bank shares
were hit particularly hard. BNP Paribas <BNPP.PA> fell 2.34
percent.
Ireland's weekend announcement that it would take stakes in
its three main banks for 5.5 billion euros further underlined
the global scope of the worst financial crisis in 80 years.
Yields on benchmark 10-year euro zone government bond fell
7 basis points on the day to 2.94 percent <EU10YT=RR>, having
earlier traded at all-time lows of 2.918 percent.
China's central bank cut interest rates by 27 basis points
to 5.31 percent.
Japan's Nikkei 225 index <> rose 135.26 points or 1.57
percent to 8,723.78, after the government approved an extra $54
billion in spending while also playing catch up from Friday's
White House lifeline to U.S. automakers.
The benchmark 10-year Japanese government bond yield
touched a 3-1/2 year low after the drop in exports was
reported. The yield hit 1.200 percent, the lowest since July
2005 <JP10YTN=JBTC>.
Japan's markets will be closed on for the Emperor's
Birthday on Tuesday Dec. 23.
MSCI's emerging markets stock index <.MSCIEF> is down 14.78
points or 2.54 percent to 567.28.
Emerging market yield spreads narrowed by 9 basis points to
697 basis points over U.S. Treasuries, according JP Morgan's
Emerging Markets Bond Index Plus <11EMJ><.JPMEMBIPLUS>.
Commodities were mixed. Crude oil fell $2.45 a barrel or
5.78 percent to settle at $39.91, while gold rose $8.10 or 0.98
percent to bid $845.80. Soybeans, corn and wheat prices ended
higher.
(Additional reporting by Natsuko Waki and Brian Gorman in
London; Jan Strupczewski and Marcin Grajewski in Brussels; John
Parry and Steven C. Johnson in New York.)
