(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, March 4 (Reuters) - Global stocks fell sharply on
Tuesday as renewed worries about banking stress and a simmering
global credit crunch spurred an equity sell-off and sent
investors scurrying to safe-haven U.S. Treasury debt.
Oil fell sharply to below $100 a barrel as investors await
the outcome of a meeting of the Organization of Petroleum
Exporting Countries on Wednesday. Gold held to recent gains
before making a renewed move closer to $1,000.
The dollar fell versus the yen and Swiss franc after
Federal Reserve Chairman Ben Bernanke warned that U.S. mortgage
delinquencies and foreclosures are likely to rise while home
prices decline further, adding to fears of a U.S. recession.
The banking and credit woes were highlighted by concerns
that the largest U.S. banking company, Citigroup Inc <C.N>
could need $15 billion more capital after already raising some
$30 billion of capital from investors including Abu Dhabi,
Kuwait and Saudi Prince Alwaleed bin Talal. A Merrill Lynch
analyst made the projection based on further mortgage
write-downs.
"It's going to take more than that (amount already raised)
to rescue Citi," said Sameer al-Ansari, head of investment
agency Dubai International Capital, at a private equity
conference in Dubai.
The credit concerns pushed two-year Treasury note yields to
the lowest since April 2004. Bernanke's comments, and the
sell-off in equity markets, also lifted demand for safe haven
treasuries.
U.S. stocks dropped more than 1 percent as Citi dropped to
its nine-year low, down 4.7 percent at $22, and weighed on
financial stocks generally. The sharp pullback in oil prices
dragged down energy shares.
"Investors are concerned about the width and depth of the
problems in subprime and real estate. It has not gone away, and
every couple of days, it rears its ugly head," said Paul Nolte,
director of investments at financial adviser Hinsdale
Associates in Hinsdale, Illinois.
The Dow Jones industrial average <> was down 146.78
points, or 1.19 percent, at 12,112.12. The Standard & Poor's
500 Index <.SPX> was down 15.89 points, or 1.19 percent, at
1,315.45. The Nasdaq Composite Index <> was down 25.23
points, or 1.12 percent, at 2,233.37.
European shares fell for a fifth consecutive day as concern
over banks' future earnings also weighed on financials and a
weaker outlook from U.S. chipmaker Intel <INTC.O> sent
technology stocks lower.
The pan-European FTSEurofirst 300 index <> closed 1.4
percent lower at 1,279.97 points, a six-week closing low.
"The sentiment is still very, very bad," said Thomas
Radinger, a fund manager of European stocks at Pioneer
Investments, adding that he didn't see any short-term
improvement.
Banking stocks were the weakest sector and the heaviest
weight on the European benchmark index with HSBC <HSBA.L>
falling 2.7 percent, UBS <UBSN.VX> down 3.4 percent and
UniCredit <CRDI.MI> down 2.4 percent.
Technology stocks fell after Intel said weaker prices for
some of its memory chips could hurt profits, adding to worries
about technology sector spending and growth.
The world's top handset maker, Nokia <NOK1V.HE> fell 5.2
percent, Dutch chip equipment maker ASML <ASML.AS> fell 3.9
percent and Germany's Infineon <IFXGn.DE> dropped 5.2 percent,
while the European technology shares index <.SX8P> eased 3.8
percent.
Bernanke urged a vigorous response to stabilize housing
markets and said banks may have to write down the principal of
some troubled home loans to ward off greater losses that could
result from outright defaults.
U.S. government bond prices shed early losses and turned
higher on Bernanke's comments, figuring it augured still more
aggressive rate cuttting by the Fed. Market bets of a Fed rate
cut at its March 18 meeting ticked down slightly to roughly a
66 percent chance of a cut in benchmark interest rates by
three-quarters of a percentage point from the current 3
percent
"Main Street and Wall Street are imploding ... They are
going to continue to worsen," said T.J. Marta, fixed-income
strategist at RBC Capital Markets in New York.
The bleak outlook, together with expectations of more Fed
rate cuts, triggered a fresh wave of curve-steepening trades
which involve purchases of short maturity Treasuries and sales
of longer-dated issues, traders and analysts said.
The yield gap between two-year and 10-year Treasuries
briefly hit 195 basis points, its widest since July 2004.
The two-year note's price, which moves inversely to its
yield, traded up about 5/32 for a yield of 1.5589 percent
<US2YT=RR>, compared with 1.64 percent late on Monday.
Verbal intervention by euro finance ministers ahead of the
European Central Bank meeting on Thursday halted the euro's
five-day run of record highs versus the dollar.
However, the euro maintained its upward bias against the
dollar, with investors convinced that the poor U.S. economic
outlook will keep the Fed on its easing path.
The dollar dipped to a session low of 102.66 yen <JPY=>,
within striking distance of a three-year trough of 102.62 yen
touched on Monday, according to Reuters data. It was last
trading at 102.70 yen, down 0.5 percent on the day.
The euro fell 0.4 percent to 156.36 yen <EURJPY=> and
dropped 0.6 percent to 1.5751 Swiss francs <EURCHF=>. Against
the Swiss currency, the dollar declined 0.6 percent to 1.0354
Swiss francs <CHF=>.
Oil retreated from a record of almost $104 a barrel on
Monday in the previous session amid expectations OPEC leaves
output unchanged despite high prices. In New York, April crude
<CLJ8> was down $2.11, or 2.06 percent, at $100.34 a barrel.
(Writing by Herbert Lash. Editing by Richard Satran)
