(Updates with U.S. late-day action)
By Neil Shah
NEW YORK, Jan 17 (Reuters) - World stockmarkets slid for a
third straight day on Thursday as more weak U.S. economic data
fanned fears of a recession, and bond prices jumped after
Federal Reserve Chairman Bernanke boosted expectations for an
aggressive interest rate cut in his testimony to Congress.
The benchmark U.S. Standard & Poor's 500 Index fell almost
3.0 percent, bringing the decline for the year so far 9.2
percent.
Wall Street was hit by Merrill Lynch & Co Inc <MER.N>, the
world's largest brokerage, announcing a nearly $10 billion
quarterly loss, with writedowns of over $16 billion. Investors
have been acutely worried about the continuing impact of the
subprime mortgage crisis on the financial sector and the
availability of credit.
Showing the downturn spreading to the manufacturing sector,
a Philadelphia Federal Reserve Bank survey said factory
activity in the U.S. mid-Atlantic region contracted
dramatically in early January. That report also pushed European
shares into negative territory after a rollercoaster session.
"Philly Fed was lower-than-expected. It kind of shocked the
market," said Cleveland Rueckert at Birinyi Associates Inc. in
Stamford, Connecticut,
In testimony before the U.S. House of Representatives'
Budget Committee, Fed chief Bernanke repeated his recent
downbeat economic views, giving another signal that he will
likely push through a hefty half-percentage point rate cut at
the central bank policy committee meet at month's end.
Investors were also hit with more bad news about the U.S.
housing market as a government report showed that
groundbreaking on new homes last month slumped to the slowest
pace since 1991, while building permits sank to their lowest
since 1993.
The Dow Jones industrial average <> ended down 2.43
percent, at 12,163.44, while the Standard & Poor's 500 Index
<.SPX> fell 2.89 percent at 1,347.66, and the Nasdaq Composite
Index <> was off 1.89 percent at 2,367.04.
Concerns about the U.S. economy slipping into recession
also pushed oil prices down nearly a dollar to about $90 a
barrel.
U.S. TREASURY BONDS BENEFIT
The Philadelphia Federal Reserve Bank's data on factory
activity boosted prices of U.S. Treasuries, which tend to rise
on signs of a softening economy.
The reading "is a fresh reminder that the manufacturing
sector continues to struggle -- we are seeing a bid come back
into the Treasury market," said Wan Chong Kung, senior
fixed-income portfolio manager at First American Funds in
Minneapolis.
In the afternoon, the two-year Treasury note's yield dipped
below 2.4268 percent to the lowest level since September 2004.
"When the head of a central bank says there may be a need
for additional action, the writing is already on the wall,"
said David Watt, senior currency strategist at RBC Capital
Markets in Toronto.
Benchmark 10-year notes rose 27/32 in price to yield 3.6377
percent. Two-year notes climbed 4/32 to yield 2.4368 percent.
GLOBAL FEARS
Fears that a U.S. recession may lie ahead has roiled global
stock markets in recent weeks.
U.S. blue-chip shares are down about 7.3 percent since the
start of the year, while the MSCI's main world stock index is
down 7 percent. The index was down 0.89 percent at 369.49
Thursday.
After trading in the black, the pan-European FTSEurofirst
300 index <> ended down 0.6 percent.
By contrast, Japan's benchmark Nikkei average rose 2.1
percent, gaining for the first time in five sessions. It ended
the session up 2.1 percent at 13,783.45, and the broader TOPIX
index <> was up 2.2 percent at 1,330.44.
(Additional reporting by Jeremy Gaunt and Randy Fabi in
London and Caroline Valetkevitch, Kristina Cooke, Nick Olivari,
Gertrude Chavez-Dreyfus and Chris Reese in New York)
(Reporting by Neil Shah. Editing by Richard Satran)
