* Ebbing demand depresses oil to $38 a barrel
* Stocks fall on economic slump
* Government bonds gain in safe haven flight from equities
(Recasts with U.S. markets, changes dateline; previous LONDON,
changes byline)
By John Parry
NEW YORK, Jan 12 (Reuters) - The dollar hit a one-month
high against euro on Monday as investors positioned for a rate
cut from the European Central Bank, while oil prices fell 7
percent as global economic slowdown sapped energy demand.
Stocks fell on concerns about the fourth-quarter earnings
that U.S. companies begin reporting this week, which also
helped push bond prices higher.
Lower oil prices and a stronger dollar helped depress gold
prices.
Friday's December U.S. payrolls report, which showed more
than half a million jobs lost and the highest unemployment rate
since 1993, deepened concerns about U.S. consumer spending and
corporate profits in the country's year-old recession.
"Global equities have sold off as a result of the darkening
outlook for the global economy and that has rekindled demand
for the relative safety of U.S. assets," said Omer Esiner,
senior market analyst at Ruesch International in Washington.
"Expectations for a euro-zone rate cut on Thursday are
undermining the euro."
Data last week showed factory output collapsing across
Europe, raising expectations that the European Central Bank
will cut rates by 50 basis points to 2.00 percent when it meets
on Thursday.
Against the dollar, the euro <EUR=> briefly fell below
$1.33 and was last at 1.3395.
The dollar tumbled to a three-week low against the yen,
according to Reuters data, last trading at 89.07 yen <JPY=>.
The euro earlier hit a one-month low against the Japanese
currency.
Alcoa Inc <AA.N> was one of the biggest drags on the U.S.
stocks. The aluminum producer was scheduled to kick off the
earnings season when it posts fourth-quarter results after the
close of U.S. trading.
Citigroup <C.N> fell after news the embattled U.S. bank is
nearing a deal to sell a controlling stake in its Smith Barney
retail brokerage to Morgan Stanley.
"The perception is that this is a desperate measure taken
by a firm in turmoil to try to throw itself a lifeline," said
Jack Ablin, chief investment officer at Harris Private Bank in
Chicago. "Investors don't see catalysts. There's a real worry
that earnings estimates are just too optimistic."
As economic data points to a sharp slowdown in industrial
activity across the world, demand for crude oil is wilting. Oil
prices fell 7 percent just below $38 per barrel to the lowest
since Dec. 19.
On U.S. stockmarkets, shortly after 12:30 p.m. (1730 GMT),
the Dow Jones industrial average <> fell 0.87 percent, to
8,524. The Standard & Poor's 500 Index <.SPX> was down 1.57
percent, at 876. The Nasdaq Composite Index <> was down
1.5 percent, at 1,548.
In Europe, the FTSEurofirst 300 index <> of top
shares provisionally closed down 1.5 percent at 854.09 points.
It plunged 45 percent in 2008.
Falling stocks sparked demand for the relative safety of
government securities. The benchmark 10-year U.S. Treasury
note's price, which moves inversely to its yield, <US10YT=RR>
rose 16/32 for a yield of 2.34 percent. The 2-year U.S.
Treasury note <US2YT=RR> rose 2/32 in price to yield 0.73
percent.
Euro zone government bond prices mostly pushed higher on
Monday as share markets fell, spurring bids for low risk
assets, with investors favoring benchmark German Bunds over
regional peers.
March Bund futures <FGBLc1> rose 39 ticks on the day to
125.11.
Spanish <ES10YT=RR> 10-year government bond yield spreads
stayed near historic wides against counterpart benchmark German
bunds after ratings agency Standard & Poor's said it may cut
Spain's "AAA" sovereign credit rating.
U.S. gold for February delivery <GCG9> slipped $29.4 at
$825.6 an ounce, pressured lower by the stronger dollar.
The MSCI index of stocks in the Asia-Pacific region outside
Japan <.MIAPJ0000PUS> slipped 0.7 percent and Japan's Nikkei
share average <> finished 0.45 percent lower.
(Reporting by Wanfeng Zhou, Ellen Freilich, Charles
Mikolajczak, Kevin Plumberg, Jessica Mortimer, Emelia
Sithole-Matarise and Jeremy Gaunt, writing by John Parry;
Editing by Tom Hals)
