(Updates, adds Wall Street outlook)
By Jeremy Gaunt, European Investment Correspondent
LONDON, March 13 (Reuters) - Fears that stresses in credit
markets and the world economy as a whole are deteriorating
despite central bank help battered financial markets on
Thursday, sinking global stocks and sending the dollar tumbling.
The dollar hit another record low against the euro and fell
below 100 Japanese yen for the first time in 12 years,
underlining concerns among monetary officials about extreme
currency moves.
Oil, meanwhile, was at a record high above $110 a barrel and
gold was closing in on $1,000 an ounce. Wall Street looked set
for a sharply lower opening while European shares were down
around 2 percent and Japanese equities lost more than 3 percent.
In the latest credit market fallout, an affiliate of
U.S.-based buyout firm Carlyle Group, Carlyle Capital Group
<CARC.AS> defaulted on about $16.6 billion of debt.
"This is going to be a nail-biting day," said Paul
Mendelsohn, chief investment strategist at Windham Financial
Services in the U.S. state of Vermont. "The dollar seems to be
going into a free-fall."
Investors shrugged off any remaining vestiges of the
euphoria experienced earlier in the week from U.S. Federal
Reserve-led moves to provide liquidity to credit markets.
Much of the focus was on the sinking dollar, which hit a new
low against the euro and fell to a 12-year low against the
Japanese yen <JPY=> below 100 yen, a sign of both current U.S.
economic weakness and an unwinding of risky trades involving yen
borrowing.
"We are entering dollar crisis mode," said Derek Halpenny,
currency economist at BTM-UFJ in London.
"Looking at the markets there is a complete loss of
confidence and that's because the markets are concerned over the
U.S. financial sector and ultimately what the (Federal Reserve)
will be forced to do to support that sector," he said.
The recent currency moves have aroused concerned comments
from European Central Bank President Jean-Claude Trichet and
Japanese Finance Minister Fukushiro Nukaga.
Trichet, in an interview with French magazine Le Point, said
disorderly swings in currencies were undesirable.
"In the present circumstances, I am concerned by excessive
exchange rate movements," he told Le Point.
Nukaga said dollar/yen exchange rate moves were a reflection
of dollar weakness rather than yen strength and noted that the
Group of Seven industrial nations shared the view that excessive
foreign exchange moves are undesirable for economic growth.
The euro hit a new high of $1.5624 <EUR=> before edging back
a bit to around $1.5592. The dollar was at 100.25 yen <JPY=>
having earlier broken to 99.77 yen.
HIGH OIL, LOW EQUITIES
The tumbling dollar, meanwhile, poses a dilemma for the
hawkish ECB, which is holding off cutting interest rates because
of concern about inflation pressures.
A rising oil price is one of the reasons for the pressure,
but the price is spurred on by a weak dollar as this makes oil
cheaper in other currencies.
Oil was trading at a record high above $110 as investors
weighed the dollar's weakness against bloated U.S. crude stocks.
U.S. crude for April delivery <CLc1> rose 66 cents to
$110.58 a barrel, above the all-time peak of $110.20 hit on
Wednesday.
"We're looking at the U.S. dollar, we're looking at
speculation, we're looking at geopolitical. Those three things
tying together are defying fundamentals," said Peter McGuire,
managing director of Commodity Warrants Australia.
Global stocks shrugged off the last vestiges of euphoria
from Fed-led moves earlier in the week to provide liquidity to
credit markets, renewing their downward route on worries about
the health of the financial sector.
Financials led European shares sharply lower.
The FTSEurofirst 300 index <> was down 1.9 percent
having rallied for two days.
Japan's Nikkei benchmark <> sank to a new 2-1/2 year
closing low, down 3.3 percent at 12,433.44. The broader TOPIX
<> was down 3.1 percent at 1,215.87, also a 2-1/2 year low.
Euro zone government bonds opened higher as investors sought
safety.
June Bund futures <FGBLM8> were 30 ticks higher at 117.93.
Ten-year yields were off 2 basis points at 3.729 percent.
(Editing by David Christian-Edwards)
