(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, March 26 (Reuters) - Fears of additional
write-downs at banks on both sides of the Atlantic and fresh
signs of a flagging U.S. economy drove global stocks lower on
Wednesday as government debt prices rose on a safe-haven bid.
Spurred by a prominent analyst's downgrade of four big U.S.
banks and a profit warning from Deutsche Bank, financial stocks
dragged major stock indexes down as European central bankers
warned there was no end in sight to the global credit crunch.
Oil jumped more than $4 a barrel after a government report
showed fuel stocks fell more than expected in the United
States, the world's top consumer.
The dollar fell for a second session as an unexpected drop
in durable goods orders heightened worries about the U.S.
economy's health and raised expectations the Federal Reserve
would cut U.S. interest rates further.
Gold hit a one-week high as the weak dollar and rising oil
encouraged investors to venture back into metals.
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.
Investors also sold off financial shares on fears that
funding for leveraged buyouts could dry up and hurt bank
profits on news that banks' increasing reluctance to provide
credit could derail a $20 billion leveraged buyout of U.S.
radio and TV station operator Clear Channel Communications Inc
<CCU.N>.
"The news about Clear Channel highlights the risks on the
balance sheets of these banks from their leveraged loan
commitments,"said Manny Weintraub, managing director of Integre
Advisors in New York. "Every deal that (falls) through is a
loss to these banks."
The Dow Jones industrial average <> dropped 109.74
points, or 0.88 percent, to 12,422.86. The Standard & Poor's
500 Index <.SPX> dropped 11.86 points, or 0.88 percent, to
1,341.13. The Nasdaq Composite Index <> dropped 16.69
points, or 0.71 percent, to 2,324.36.
FINANCIAL SHARES TOP DRAGS
Financial stocks were the biggest drags on European and
U.S. indexes, reflecting gloom over credit markets and a new
bank downgrade by Oppenheimer & Co analyst Meredith Whitney.
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 5.9 percent to $22.05, Bank of America shed
2.8 percent to $39.84 and JPMorgan lost 4.2 percent to $44.11.
Deutsche Bank <DBKGn.DE> said the global credit crisis
threatened its profit target for this year, and the German
lender fell 1.97 percent
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.
U.S. Treasury Secretary Henry Paulson said housing prices
needed to be allowed to continue to drop for now.
BANKS, XSTRATA WEIGH IN EUROPE
European stocks gave up some of the previous session's
sharp gains, with Anglo-Swiss miner Xstrata the biggest
decliner after takeover talks with Brazil's Vale broke down.
Shares of Xstrata <XTA.L> closed down 5.22 percent.
The FTSEurofirst 300 index <> of top European shares
lost 0.6 percent to close at 1,258.48 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, which later extended gains on a well-bid
auction of $28 billion in two-year notes.
The simmering credit crisis and the unknown depth of an
economic downturn has led investors to let cash build in their
portfolios, said Willie Watt, chief executive of Martin Currie
Investment Management Ltd, a Scottish money manager with about
$31 billion under management.
"Clients haven't worked through what all this means. Cash
is building up and the building of cash will continue.
Somewhere there will be a catalyst to change that," he said.
The benchmark 10-year U.S. Treasury note was up 4/32, with
the yield at 3.4922 percent.
Oil climbed over $106 a barrel amid a drop in fuel stocks
and declining fuel production in the world's top oil consumer.
U.S. crude oil futures <CLc1> hit a session high of $106.20
and settled at $105.90 a barrel, a $4.68 gain for the day.
London Brent <LCOc1> added $3.39, settling at $103.99.
U.S. gold futures closed near a one-week high, extending
the previous session's rally, on the dollar's slump and surging
oil prices.
Gold is expected to further consolidate before testing new
highs after a tumultuous price drop last week put a damper on
bullion's run.
The active U.S. gold contract <GCJ8> for April delivery in
New York settled up $14.20, or 1.5 percent, at $949.20 an
ounce. Gold futures jumped nearly 2 percent on Tuesday.
The dollar fell on yhr surprisingly weak U.S. durable goods
orders and remarks by Trichet.
Trichet held a firm stance against inflation and said euro
zone interest rates were at the right level, suggesting an ECB
rate cut was not in the works.
Price stability remained the ECB's No. 1 concern, he said.
The euro <EUR=> was up 1.4 percent against the dollar at
$1.5845.
Earlier in Asia, Japan's Nikkei <> ended down 0.3
percent as exporters such as Canon Inc <7751.T> slipped on a
stronger yen and the country's three largest banks fell amid
concerns about the global credit turmoil. But MSCI's measure of
other Asian stock markets <.MIAPJ0000PUS> climbed 0.7 percent.
(Reporting by Justin Grant, Ellen Freilich, Lucia Mutikani,
Steven C Johnson and Frank Tang in New York and Amanda Cooper
in London; Writing by Herbert Lash; Editing by Leslie Adler)
