(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, April 22 (Reuters) - Oil surged to a fresh high
above $119 a barrel and the dollar slumped to new lows on
Tuesday, reigniting U.S. inflation worries and underlining the
weak state of the world's biggest economy.
The surging oil prices darkened the mood on Wall Street,
fueling concerns about how higher energy costs will affect
consumer spending the corporate profits.
U.S. and European equity markets also tumbled as several
big U.S. companies lowered their profit outlooks due to slowing
economic growth, with McDonald's Corp <MCD.N> reporting its
first monthly decline in five years in sales at established
restaurants.
U.S. crude oil <CLc1> hit an all-time peak of $119.74,
boosted by a jump in demand last month from China, the
second-largest energy consumer, and supply worries from key
producers Russia and Nigeria.
The euro rose above $1.60 for the first time since its 1999
inception as expectations rise that the European Central Bank's
next move may be a hike in benchmark interest rates to curb
inflation.
In the United States, the housing market continues to
struggle, with the pace of sales of existing-home falling in
March while inventories swelled and prices slid, the National
Association of Realtors said in a report.
U.S. government debt initially eased on the housing data,
but long-dated U.S. Treasuries later rose as the weak stock
market revived some of the allure of safe-haven bonds.
Microchip maker Texas Instruments <TXN.N> said its
second-quarter earnings would be weaker than expected due to an
uncertain economic situation as it cited customer caution and
weak demand for high-end cell phones. The company's shares fell
6 percent.
Health insurer UnitedHealth Group Inc <UNH.N> posted
lower-than-expected quarterly profit and slashed its full-year
earnings forecast. Its shares fell almost 11 percent.
"People are looking at (earnings) outlooks. They're worried
about the economy. I think you need to see outlooks pick up,
and that will help the market come back," said Giri Cherukuri,
head trader at Oakbrook Investments LLC in Lisle, Illinois.
The Dow Jones industrial average <> fell 133.21 points,
or 1.04 percent, at 12,691.81. The Standard & Poor's 500 Index
<.SPX> declined 15.47 points, or 1.11 percent, at 1,372.70. The
Nasdaq Composite Index <> fell 39.93 points, or 1.66
percent, at 2,368.11.
European shares fell for a second consecutive day, led
lower by banks after Royal Bank of Scotland <RBS.L>, Britain's
second-largest bank, unveiled a record rights issue to cover
increased write-downs on the value of assets.
The pan-European FTSEurofirst 300 index <> closed
down 0.6 percent at 1,304.56 points.
RBS's 12 billion pound ($23.70 billion) rights issue will
be the biggest ever, and the bank also said it would sell
assets to generate 4 billion pounds in core capital this year
to repair one of the sector's most stretched balance sheets.
"This indicates that the crisis is not over yet and that we
may see further surprises," said Carsten Klude, chief economist
at M.M. Warburg in Hamburg, Germany.
"The risk that profit forecasts are too high prevails.
Especially forecasts for the second half of the year are still
too optimistic," he said.
RBS shares fell 3.9 percent
In Asia, Japan's Nikkei stock average <> declined 1.1
percent, weighed by autos and falling financial stocks on
worries about the U.S. banking sector.
World stocks on a MSCI measure <.MIWD00000PUS> were down
0.33 percent at 382.69.
Gold futures in New York climbed as a weakened dollar and
record crude oil prompted buying. Hawkish comments from
European Central Bank policy-makers lifted the euro and gold's
appeal as a hedge against the falling U.S. currency.
The dollar fell against major trading-partner currencies,
with the U.S. Dollar Index <.DXY> down 0.52 percent at 71.292.
The euro <EUR=> rose 0.53 percent to $1.599, after touching
$1.6018. Against the yen, the dollar <JPY=> was down 0.48
percent at 102.74.
U.S. spot gold prices <XAU=> rose $8.70, or 0.95 percent,
to $922.50.
The comments from ECB officials supported the view that
benchmark rates in the euro zone are not likely to come down
soon.
Rising inflation stemming from soaring food and energy
prices came firmly into view as U.S. crude oil hit a historic
high. This gave added impetus to inflation-busting talk from
ECB policymakers, determined to contain the impact of rising
prices.
U.S. Treasury debt prices were mixed. Gains in longer-dated
debt were limited by an unexpectedly mild slide in March home
sales, which added to doubts that the Federal Reserve would
continue cutting interest rates aggressively.
The news weighed on shorter-dated Treasuries and a heavy
slate of government bond auctions added to the pressure.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
6/32, with the yield at 3.7043 percent. The 2-year U.S.
Treasury note <US2YT=RR> was down 1/32, with the yield at
2.1804 percent. The 30-year U.S. Treasury bond <US30YT=RR> was
up 17/32, with the yield at 4.4604 percent.
(Additional reporting by Vivianne Rodrigues, Matthew Robinson,
Burton Frierson and Cal Mankowski in New York, and Atul Prakash
and Tamora Vidaillet in London; Editing by Leslie Adler)
