(Recasts, adds U.S. markets, byline; changes dateline,
previous LONDON)
NEW YORK, April 9 (Reuters) - Oil prices surged to a fresh
record high and U.S. Treasury debt prices rose on Wednesday as
recession fears and a bleak corporate profit outlook lifted
demand for less-risky investments like government bonds.
The U.S. economy will tip into recession this year and
there is a 25 percent chance world growth will slow to 3
percent or less, the International Monetary Fund forecast.
On Wall Street, U.S. stock indexes slipped as United Parcel
Service Inc's <UPS.N> forecast for an earnings shortfall and
the sharp rise in oil prices dampened the outlook for corporate
results.
European shares also fell, pressured by financial shares on
the view that they may have to reveal more damage to earnings
inflicted by the still simmering global credit crisis.
The dollar eased against a basket of currencies as traders
snapped up the euro in anticipation of more tough inflation
talk and signals from the European Central Bank that it was not
ready to cut interest rates.
Gold firmed as the dollar slipped on growing expectations
of further aggressive rate cuts by the U.S. Federal Reserve.
A resurgence in oil prices, which will exact a toll on
consumers in the United States who are struggling with loan
payments and a faltering job market, added to the sour economic
outlook. That helped push money into safe-haven bonds.
"It takes more money out of consumers' pockets. It's a drag
on growth. More people are starting to think about a
recession," said Michael Franzese, head of government trading
at Standard Chartered in New York.
Gains in bond prices were curbed by a report that the
Federal Reserve is considering new measures to resolve the
credit crunch should the steps taken so far fail to take hold.
News that Citigroup Inc <C.N>, the biggest U.S. bank in
terms of assets, is close to a deal to sell about $12 billion
of leveraged loans and bonds in a bid to improve its balance
sheet initially lifted stocks and help keep a lid on bond
prices.
But the Citigroup news was overshadowed by U.S. government
data showing a surprise 3.2 million barrel decline in crude
inventory. Major stock indexes were down as much as 1 percent,
leading oil to spike to more than $111 a barrel.
Shares of Morgan Stanley <MS.N> fell and helped to drag
down financial stocks after it said that more of its assets
became illiquid or hard to value during the first quarter.
"Companies are making comments about what the rest of the
year is going to look like, and that's what the market is going
to be focusing on in the short term," said Giri Cherukuri, head
trader at OakBrook Investments LLC in Lisle, Illinois.
In early afternoon trading, the Dow Jones industrial
average <> was down 104.79 points, or 0.83 percent, at
12,471.65. The Standard & Poor's 500 Index <.SPX> traded down
13.91 points, or 1.02 percent, at 1,351.63. The Nasdaq
Composite Index <> was off 30.37 points, or 1.29 percent,
at 2,318.39.
The FTSEurofirst 300 <> index of top European shares
ended unofficially down 0.72 percent at 1,308.92 points, with
banks and pharmaceuticals dragging on the benchmark.
ING <ING.AS> fell 2.9 percent, BNP Paribas <BNPP.PA> fell
2.3 percent and Credit Suisse <CSGN.VX> lost 3.4 percent.
"My instinct is that we'll probably be trading around in a
rather similarly choppy way in the first quarter until people
are confident that their dirty washing has all been revealed,"
said Andrew Bell, European Strategist at Rensburg Sheppards,
Energy stocks gained after the rise in crude oil. BP <BP.L>
rose 1.6 percent, Total <TOTF.PA> rose 1.3 percent and Shell
<RDSa.L> added 1 percent.
Stocks also fell in Asia as financial shares were hit by
renewed concerns about credit-related losses after U.S. savings
and loan bank Washington Mutual <WM.N> said it expects a large
quarterly loss, a reminder the global credit crisis has not
abated.
The MSCI measure of Asian stocks outside Japan
<.MIAPJ0000PUS> fell 0.6 percent by 0550 GMT, erasing earlier
modest gains to post losses for a second day in a row.
Japan's Nikkei average <> fell 1.2 percent.
Oil prices jumped after U.S. crude oil stockpiles fell by
3.2 million barrels in the week to April 4 as imports declined,
the U.S. Energy Information Administration said. Analysts
expected a 2.2 million-barrel increase in stocks.
"It's bullish across the board. A very low crude import
number got us a surprise draw there," said Tim Evans, an
analyst at Citigroup Futures Research. "Imports are basically
running behind year-ago levels."
Oil also rose in reaction to further dollar weakness.
U.S. light sweet crude oil <CLc1> rose $3.54, or 3.3
percent, to $112.03 per barrel, breaking through the previous
record high of $111.80, set on March 17.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
24/32 to yield 3.4732 percent. The 2-year U.S. Treasury note
<US2YT=RR> was up 8/32 to yield 1.758 percent. The 30-year U.S.
Treasury bond <US30YT=RR> was up 37/32 to yield 4.3167
percent.
The dollar fell against a basket of major trading-partner
currencies, with the U.S. Dollar Index <.DXY> down 0.57 percent
at 71.88. The euro <EUR=> rose 0.75 percent to $1.5817 and
against the yen, the dollar <JPY=> fell 0.72 percent to
101.86.
Spot gold prices <XAU=> rose $12.60, or 1.38 percent, to
$927.60.
(Reporting by Caroline Valetkevitch, Lucia Mutikani, Richard
Leong in New York and Atul Prakash, Golnar Motevalli, Bate
Felix and Maryelle Demongeot in London)
(Reporting by Herbert Lash; editing by Gary Crosse)
