* European shares drop 2.1 pct; Nikkei falls 4.8 pct
* Losses seen at Citigroup, Sony, Toshiba
* Euro slides ahead of expected ECB rate cuts this week
* Government bonds gain, 2-yr euro yields hit historic low
By Mike Peacock
LONDON, Jan 13 (Reuters) - Fears of steep losses at U.S.
bank Citigroup and Asian industry giants such as Sony pummelled
shares on Tuesday and bolstered government debt.
The euro slid to a one-month low against the dollar and the
yen as the European Central Bank looked set to cut interest
rates again this week, while oil continued to drop on fears
about reduced energy demand as the world economy shrinks. []
Two-year euro zone government bond yields briefly fell to
their lowest since the launch of the euro in 1999, according to
Reuters charts, as a new wave of risk aversion took hold.
Oil fell more than $1 a barrel to its lowest in more than
two weeks, as investors grew more pessimistic about energy
demand on signs the world economy will slow down sharply. []
U.S. light crude for February delivery <CLc1> fell $1.19 to
$36.40 a barrel by 0715 GMT, the weakest level since Dec. 26.
The ECB is expected to cut interest rates by a half point to
2 percent on Thursday, according to a Reuters poll. <ECBWATCH>
"Earnings and economic disappointments are the main
contributors to the rise in risk aversion, both of which are
likely to act as a persistent drag on markets over coming
weeks," Calyon analysts said in a note to clients on Tuesday.
MSCI's all-country world index <.MIWD00000PUS> was down
about 1.5 percent, its fifth negative performance in a row.
European shares also slipped for a fifth straight session,
trading 2.1 percent lower and tracking losses in the U.S. and
Asia, as investors worried that big companies might post poor
results in the current earnings reporting season. <.EU>
BRACED FOR POOR RESULTS
U.S. banking giant Citigroup <C.N> could record a
fourth-quarter operating loss of over $10 billion, the Wall
Street Journal reported on Monday, while U.S. aluminium producer
Alcoa <AA.N> announced a fourth-quarter loss. []
Asia's export companies are also hurting as major overseas
markets such as the United States are mired in recession.
Japan's Sony Corp <6758.T> will likely suffer an annual
operating loss of about $1.1 billion, its first such loss in 14
years, a person with knowledge of the matter said. []
Toshiba Corp <6502.T> expects a loss of about $2.2 billion
according to Japanese media reports. Shares in both companies
shed more than 8 percent in response.
Japan's Nikkei <> fell 4.8 percent, after being closed
on Monday for a public holiday.
CREDIT WARNINGS
By 0803 GMT, the euro <EUR=> traded 0.7 percent lower at
$1.3274, having hit its one-month low in early London trade.
Against the yen <EURJPY=R>, it slipped by the same
percentage to 118.39 yen, having earlier fallen to 117.69 yen,
likewise its weakest in a month.
The New Zealand dollar sank 5 percent to a two-week low
after Standard & Poor's said it could downgrade New Zealand's
foreign currency rating, threatening to accelerate capital
flight from an economy sinking deeper into recession and
struggling to fund its current account deficit. []
Spain on Monday became the third euro zone country since
Friday to be warned by S&P agency that its credit rating was
under threat from the global credit crisis.
Greece and Ireland have also been put on watch. Those
collective warnings were also hurting the euro.
"The market has become sensitive to bad news such as credit
outlook downgrading, especially with many investors now
considering where they should be repatriating funds from,
instead of investing to," said Masaki Fukui, a senior market
economist at Mizuho Corporate Bank in Japan.
Intra euro zone government bond yield spreads blew out to
their widest since the launch of the euro a decade ago as
investors piled into German Bunds, the safest and most liquid of
regional government debt.
Ten-year Portuguese, French, Belgian, Greek, Spanish and
Dutch bonds were all yielding their most against benchmark Bunds
since 1999, according to Reuters charts.
(Editing by Andy Bruce)
