* Wall Street drops on disappointing earnings, data
* Euro hits 3-month high on fears over U.S. economy
* U.S. 2-year Treasuries yield at all-time low
(Updates to early afternoon trade in New York)
By Walter Brandimarte
NEW YORK, Aug 3 (Reuters) - U.S. and European stocks
slipped and the dollar fell to multi-month lows against the
euro and the yen on Tuesday as disappointing corporate earnings
and U.S. economic data added to fears about the global
recovery.
Treasuries rallied as investors sought safety, sending
yields on the two-year notes to an all-time low, although
analysts said a decline in stock prices was expected after a
rally on Monday lifted them to a three-month high.
A Wall Street Journal report that the Federal Reserve was
considering buying more bonds to prop up the economy further
boosted Treasuries prices.
Oil prices rose as the weaker dollar made it cheaper for
investors using other currencies to buy the commodity, although
commodity prices fell in general due to growth concerns. Gold
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 stock
rally.
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.
For details, see [] and [].
"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> still edged up 0.13 percent after closing on
Monday at their highest level in nearly three months.
Key U.S. and European stock indexes dipped.
The FTSEurofirst 300 index <> of top European shares
closed down 0.01 percent at 1,070.79 points as banks and miners
gave back some of Monday's sharp gains.
Miners Anglo American <AAL.L>, BHP Billiton <BLT.L> and
Kazakhmys <KAZ.L> off 0.7 to 1.3 percent, as metals prices
retreated across the board.
"A bout of weakness in the U.S. in reaction to
worse-than-expected home sales and factory orders data
unsettled traders, but these short-term dips are still tempting
in some buyers," said Will Hedden, sales trader at IG Index in
London.
The Dow Jones industrial average <> lost 29.52 points,
or 0.28 percent, to 10,644.86, while the Standard & Poor's 500
Index <.SPX> dropped 4.43 points, or 0.39 percent, to 1,121.43.
The Nasdaq Composite Index <> fell 9.27 points, or 0.40
percent, to 2,286.09.
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 3.65 percent to $59.79, while Dow shed 9.6 percent to
$25.60. [] []
U.S. stocks had closed on Monday at their highest levels in
10 weeks.
The market "needs to pull back anyway," said Wayne Kaufman,
chief market analyst at John Thomas Financial in New York. "But
we did make a new high yesterday and took out resistance, so
the uptrend is very much alive."
The S&P Consumer Discretionary Sector <.GSPD> fell 1.3
percent after data showed consumer spending and incomes were
unexpectedly flat in June while personal savings rose to the
highest level in a year. []
"This shows that spending is slowing down and it's making
us back off the retail space," said Tom Nyheim, portfolio
manager at Christiana Bank & Trust Co in Greenville, Delaware.
"It doesn't mean that we're going to slide into a
double-dip, but it does mean we should expect growth to be
slower" than previously thought, he said.
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 0.42 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 0.36 percent at
$1.3227.
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
18/32 higher in price to yield 2.9 percent, down from 2.97
percent late Monday.
The two-year note <US2YT=RR> was 2/32 higher in price to
yield 0.53 percent, an all time low, from Monday's close of
0.57 percent.
Also boosting Treasuries gains was an unsourced report by
The Wall Street Journal that the Federal Reserve 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 97 cents to $82.31 per
barrel as the dollar weakened.
Spot gold prices <XAU=> climbed 0.59 percent, to $1,187.80,
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)
