* Ebbing demand depresses oil below $38 a barrel
* Stocks fall on economic slump
* Government bonds gain in safe-haven flight from equities
(Updates markets, adds comments)
By John Parry
NEW YORK, Jan 12 (Reuters) - The dollar hit a one-month
high against the euro on Monday as investors positioned for a
rate cut from the European Central Bank, while oil prices fell
nearly 8 percent as the global economic slowdown stifled energy
demand.
Stocks fell on concerns about the fourth-quarter earnings
that U.S. companies begin reporting this week, which also
helped push government bond prices higher.
Lower oil prices and a stronger dollar helped depress
gold.
Friday's December U.S. payrolls report, which showed more
than half a million jobs lost and the highest unemployment rate
since 1993, deepened anxiety 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 half a percentage point to 2.00 percent when
it meets on Thursday.
Against the dollar, the euro <EUR=> briefly fell below
$1.33 and was last at $1.3375.
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 <EURJPY=>.
Alcoa Inc <AA.N> was one of the biggest drags on 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 <MS.N>.
"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 dropping. In
New York, oil prices fell 7.94 percent to settle at $37.59 per
barrel <CLG9>.
"The macroeconomic factors and concern about demand remain
in focus," said Phil Flynn, an analyst who watches over crude
oil and other energy markets at Chicago's Alaron Trading.
The Dow Jones industrial average <> slipped 125.13
points, or 1.46 percent, at 8,474.05. The Standard & Poor's 500
Index <.SPX> shed 20.09 points, or 2.26 percent, at 870.26. The
Nasdaq Composite Index <> lost 32.80 points, or 2.09
percent, at 1,538.79.
In Europe, the FTSEurofirst 300 index <> of top
shares closed down 1.6 percent at 853.22. 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 27/32 for a yield of 2.31 percent. The 2-year U.S.
Treasury note <US2YT=RR> traded flat to yield 0.75 percent.
"The faltering labor market is convincing investors that
the recession will be deeper and longer lasting than previously
expected," said William Sullivan, chief economist at JVB
Financial Group in Boca Raton, Florida. "As a result, the level
of risk aversion is increasing, which accordingly benefits the
Treasury market."
U.S. Treasury yields remain near 50-year lows so there is
little to drive them still lower unless investors begin to take
an even gloomier view of the economic outlook than they already
have, analysts said.
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 47 ticks on the day to
125.19.
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> fell $38.10 at
$816.19 an ounce, pressured lower by the stronger dollar.
The MSCI index of stocks in the Asia-Pacific region outside
Japan <.MIAPJ0000PUS> fell 3.2 percent. Japanese markets were
closed on Monday for a public holiday.
(Reporting by Wanfeng Zhou, Ellen Freilich, Pedro Nicolaci da
Costa, Barani Krishnan, Charles Mikolajczak and Deepa
Seetharaman in New York, Jessica Mortimer, Emelia
Sithole-Matarise and Jeremy Gaunt in London and Kevin Plumberg
in Hong Kong; Writing by John Parry; Editing by James
Dalgleish)
