* Wall Street drops on disappointing earnings, data
* Euro hits 3-month high
* U.S. 2-year Treasuries yield at all-time low on Fed
By Walter Brandimarte
NEW YORK, Aug 3 (Reuters) - U.S. and European stocks
slipped and the dollar was broadly lower on Tuesday as
disappointing corporate earnings and U.S. economic data added
to fears about the global recovery.
Treasuries rallied as investors looked for safety, sending
yields on the two-year notes to an all-time low. A Wall Street
Journal report that the Federal Reserve was considering buying
more bonds to prop up the economy further boosted prices.
Oil prices rose, however, as the weaker dollar made it
cheaper for investors using other currencies to buy the
commodity. Gold also gained as China announced moves to allow
greater freedom in domestic trading of the metal.
Worries about the sustainability of the global recovery
increased after Dow Chemical Co and Procter & Gamble reported
quarterly results that missed expectations. Strong corporate
results had been the main reason behind the recent rally that
had driven stocks to a roughly three-month high on Monday.
Economic data continued to disappoint. New orders received
by U.S. factories fell more than expected in June, while sales
of previously owned U.S. homes fell to a record low in June.
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"People are beginning to accept that the U.S. economy is
coming back to earth and, as far as growth goes, may be playing
second fiddle to other economies," said Andrew Wilkinson,
analyst at Interactive Brokers Group in Greenwich, Connecticut.
"That's driven bond yields down and is sapping the dollar."
Global stocks measured by the MSCI All-Country World Index
<.MIWD00000PUS> were little changed after closing on Monday at
their highest level in nearly three months.
Key U.S. and European stock indexes were in the red.
The FTSEurofirst 300 index <> of top European shares
closed down 0.15 percent at 1,069.33 points as banks gave back
some of Monday's sharp gains.
The Dow Jones industrial average <> declined 27.06
points, or 0.25 percent, to 10,647.32, while the Standard &
Poor's 500 Index <.SPX> lost 3.67 points, or 0.33 percent, to
1,122.19. The Nasdaq Composite Index <> dropped 8.57
points, or 0.37 percent, to 2,286.79.
"We get good news, bad news, good news, bad news," Wayne
Kaufman, chief market analyst, John Thomas Financial in New
York, said of the latest round of economic data.
"We need to consolidate over the next week, so I'm not sure
we're going to get a read on what the market thinks about this
because it needs to pull back anyway."
Shares of Procter & Gamble <PG.N> and Dow Chemical <DOW.N>
tumbled after both companies reported profits that missed Wall
Street's estimates. P&G was the biggest drag on the Dow index,
falling 3.7 percent to $59.77, while Dow shed 9 percent to
$25.76. [] []
DOLLAR WEAKEN, TREASURIES RALLY
The dollar plunged in tandem with short-dated U.S.
Treasuries yields due to fears that the U.S. economic recovery
was faltering.
The greenback slid against a basket of major currencies,
with the U.S. Dollar Index <.DXY> down 0.38 percent. The index
fell below its 200-day moving average for the first time since
January, which analysts said may signal more dollar selling
ahead.
The euro hit a three-month high of $1.3261 against the
dollar. It pared gains later, but was still up 0.28 percent at
$1.3217.
The dollar also fell below 86 yen <JPY=>, its weakest
showing against the Japanese currency since November.
"Evidence of near paralysis in the U.S. economy has pushed
U.S. yields consistently lower, and until yields bottom, the
dollar will remain under pressure," said Kathy Lien, director
of research at GFT Forex in New York.
Benchmark 10-year Treasury notes <US10YT=RR> were trading
17/32 higher in price to yield 2.91 percent, down from 2.97
percent late Monday.
The two-year note <US2YT=RR> was 2/32 higher in price to
yield 0.54 percent from 0.57 percent. Yields on the two-year
notes dipped to a record-low of 0.53 percent earlier in the
session.
Also boosting Treasuries gains was an unsourced report by
The Wall Street Journal that Federal Reserve officials would
consider buying new mortgage or Treasury bonds using the cash
it receives when its mortgage-bond holdings mature.
[]
U.S. crude oil prices <CLU0> rose 59 cents to $81.93 per
barrel as the dollar weakened.
Spot gold prices <XAU=> rose $5.70, or 0.48 percent, to
$1,186.50 after the Chinese central bank said in a statement it
will allow its banks to import and export more gold as part of
a program to push forward the development of the country's
market in the precious metal. []
(Additional reporting by Chris Reese, Steven C. Johnson and
Leah Schnurr; Editing by Leslie Adler)
