* U.S. stocks weaken, Treasuries mixed after grim data
* Euro zone government bond yields hit record lows
* Oil prices drop below $38 a barrel before rebound
By Daniel Bases
NEW YORK, Dec 23 (Reuters) - U.S. and European stock
markets slipped on Tuesday after more dismal economic reports
from the U.K. and U.S. in particular, and bond yields edged
lower.
U.S. existing home sales and prices both fell at a record
pace in November [], while other data confirmed
the U.S. economy shrank by 0.5 percent in the third quarter,
while consumer spending fell by 3.8 percent, the biggest drop
since 1980. []
The reports emphasized the view that the economic
conditions are worsening, leading to cuts in energy demand and
a holdings of risky assets.
As a result investors bought bonds as they sought the
safety of sovereign debt for peace of mind rather than a return
on their money.
"The only way out to get out of this mess is to see the
housing market improve. The inventory was up. We need inventory
to go down," said Joe Saluzzi, co-manager of trading at Themis
Trading in Chatham, New Jersey.
In U.S. stock trading, the Dow Jones industrial average
<> fell 25.01 points, or 0.29 percent, at 8,494.76. The
Standard & Poor's 500 Index <.SPX> lost 1.78 points, or 0.20
percent, at 869.85. The Nasdaq Composite Index <> dropped
7.40 points, or 0.48 percent, at 1,524.95.
General Motors <GM.N> was the biggest percentage loser on
the Dow. Investors remain skittish on the carmaker over whether
the recent aid package from the U.S. government will provide
enough of a lifeline for automakers to avoid bankruptcy. GM's
stock fell $0.56 or 15.91 percent to $2.96.
Retailers remain in focus ahead of the holiday. A survey
released on Tuesday showed just 38.7 percent of Americans went
shopping the final weekend before Christmas versus 41.6 percent
last year, marking the lowest turnout in at least six years,
according to America's Research Group and UBS.
The share price for Wal-Mart, the No. 1 global retailer,
fell $0.42 or 0.75 percent to $55.56. Clothing chain Gap Inc
<GPS.N> dropped $0.25 or 1.9 percent to $12.90.
MSCI world equity index <.MIWD00000PUS> fell 1.26 points or
0.57 percent to 220.27.
The FTSEurofirst 300 index of leading European shares
<> closed down 1.43 points or 0.18 percent to 808.35.
In Europe, oil-related share prices and pharmaceutical
companies fell hardest. Total <TOTF.PA>, Royal Dutch Shell
<RDSa.L>, Repsol <REP.MC>, and Statoil <STL.OL> fell between
1.3 and 2 percent.
Japanese markets were closed for a holiday.
HUMBLING ECONOMIC DATA
Third-quarter data showed the UK economy posted the worst
quarterly decline since 1990, shrinking 0.6 percent, while New
Zealand's economy contracted by its biggest amount in eight
years -- a seasonally adjusted drop of 0.4 percent.
U.S. existing home sales plunged a record 8.6 percent in
November and prices fell a record amount as layoffs and a stock
market crash worsened an already grim housing market, the
National Association of Realtors reported.
"The bottom line: Bah humbug. Recession, recession," said
Jennifer Lee, an economist with BMO Capital Markets in
Toronto.
Two- and 10-year euro zone government bond yields briefly
touched record lows on the back of the weak global economic
data. Light trading volumes exaggerated the price movements.
The two-year euro zone government bond yield fell to fresh
record lows of 1.754 percent <EU2YT=RR>. The 10-year yield also
hit a record low of 2.916 percent <EU10YT=RR>.
Prices move inversely to the yield.
There was weak demand for a record $28 billion auction in
five-year U.S. Treasury notes.
"...people are balking and demanding higher yields," said
George Goncalves, chief Treasury/TIPS and agency strategist
with Morgan Stanley in New York.
On the longer-end of the yield curve, the 10-year benchmark
U.S. Treasury rose 6/32 of a point in price, pushing the yeld
down to 2.16 percent. Last week the 10-year yield hit 2.04
percent, the lowest since the early 1950's <US10YT=RR>.
Year-end demand for the U.S. dollar helped blunt some of
the damage from the weak economic reports. The greenback rose
versus a basket of major trading-partner currencies, with the
U.S. Dollar Index <.DXY> up 0.04 percent at 81.224 from a
previous session close of 81.188.
The euro <EUR=> managed a marginal gain of 0.21 percent at
$1.3971 from a previous session close of 1.3942 while the
dollar traded up 0.60 percent to 90.69 against the yen from a
previous session close of 90.150 <JPY=>.
MSCI's emerging markets stock index <.MSCIEF> fell 9.92
points or 1.75 percent to 557.42.
U.S. crude oil <CLc1> dropped $0.82 or 2.05 percent to
$39.09 a barrel. Spot gold prices fell $9.60 or 1.13 percent to
$840.55. Copper hit a four-year low.
(Additional reporting by Natsuko Waki and Rebekah Curtis in
London; John Parry and Steven C. Johnson in New York; and Doug
Palmer and Alister Bull in Washington)
