* European, U.S. stocks falter as doubts on rate cut rise
* Yen slips vs euro, U.S. dollar as risk aversion eases
* Oil slips to around $87 barrel on energy demand worries
* Gold falls as investors take profits after 9-day rise
(Adds close of European markets)
By Herbert Lash
NEW YORK, Oct 9 (Reuters) - An equities rally stumbled on
Thursday as investors cast doubt on a coordinated global effort
to stem a worsening worldwide credit crisis by cutting interest
rates, and even safe-haven assets fell as uncertainty ruled the
day.
Demand for government bonds, gold and low-yielding
currencies -- all recent beneficiaries of a scramble for
relative safety as global equity markets tanked -- fell.
Expectations that energy demand will fall sharply if the
credit crisis pushes the global economy into a prolonged
recession pushed crude oil lower to around $87 a barrel.
The yen fell broadly and higher-yielding currencies bounced
as extreme risk aversion receded in jittery financial markets.
Key central banks around the world cut rates on Wednesday
in a coordinated response to halt the worst financial crisis to
sweep the world in almost 80 years.
Rallies in both European and U.S. stocks proved to be
short-lived, with a downturn on Wall Street quickly echoed in
Europe. Financial and energy shares sold off on both sides of
the Atlantic.
U.S. stocks initially rose as investors snapped up
beaten-down shares and took heart from strong earnings from
technology bellwether IBM after a six-day slide on Wall Street
that has pushed the Dow by more than a third a record peak hit
exactly one year ago. By mid-morning, however, the
bargain-hunting bounce fizzled and the Dow and S&P 500 were
lower, although the Nasdaq was slightly higher.
"There's still a significant amount of nervousness that the
credit crisis has not seen its end and there are still more
problems that lie ahead," said Michael James, senior trader at
regional investment bank Wedbush Morgan in Los Angeles.
"People are scared about what they don't know and the fear
of the unknown is what's causing people to sell stocks and ask
questions later."
Before 1 p.m., the Dow Jones industrial average <> was
down 120.18 points, or 1.30 percent, at 9,137.92. The Standard
& Poor's 500 Index <.SPX> was down 14.71 points, or 1.49
percent, at 970.23. The Nasdaq Composite Index <> was down
4.36 points, or 0.25 percent, at 1,735.97.
Shares in Morgan Stanley <MS.N> plunged as much as 25
percent on ongoing concern about the status of a planned $9
billion investment by Japan's top bank, Mitsubishi UFJ
Financial Group <8306.T>, in the U.S. investment bank.
Energy shares fell on concerns over the economy's effect on
demand, with Exxon Mobil <XOM.M> and Chevron <CVX.N> both down
around 5 percent.
"The market is definitely trading on rumors, not news,"
said Matt McCormick, a portfolio manager at Bahl & Gaynor
Investment Counsel in Cincinnati.
The tech-rich Nasdaq rose after International Business
Machines Corp <IBM.N> posted solid profit, lifting its shares
about 1.5 percent. Microsoft <MSFT.O> led the Nasdaq higher
with a 2.5 percent gain.
European stocks fell, extending a slide to four days, after
trading higher earlier in the session.
The FTSEurofirst 300 <> index of top European shares
fell 2.05 percent to 921.46.
The biggest drag on the European index were utilities
<.SX6P>, which fell on expecations declining oil prices, a
barometer for commodity prices, will lead to a cut in
electricity prices.
GDF Suez <GSZ.PA> lost 13.1 percent, EDF <EDF.PA> slipped
10.5 percent and E.ON <EONGn.DE> dropped 10.7 percent.
Oil and banking shares also were big drags on the index,
with Barclays <BARC.L> falling 13.2 percent. Royal Dutch Shell
<RDSa.L> fell 3.2 percent and BP <BP.L> shed 1.8 percent.
The cost of interbank borrowing overnight cash fell in
response to the move by financial authorities to restore calm
to jittery markets. The cost of dollar, euro and sterling funds
for the overnight rate all fell substantially, although by less
than one-half percentage point.
The rate cuts were aimed at unclogging the credit markets
and to keep business activity humming.
But the cost of borrowing dollars for any period beyond the
overnight rate rocketed. Three-month dollar Libor hit its
highest rate this year as banks scrambled for greenbacks to
cover U.S. currency positions and to fund dollar assets.
"We're not seeing any relief in term Libor fixings which
tells us that the rate cut has exclusively impacted on the
overnight market but it hasn't touched the Libor market at
all," said BNP Paribas rate strategist Alessandro Tentori in
London. "And that's not a very good sign," he said.
Euro zone government bonds fell sharply, suggesting that
some risk appetite emerged after the coordinated rate cuts.
The December Bund future <FGBLc1> traded down 81 ticks at
116.04, but up from a near-one week low of 115.46 earlier in
the session.
Although debt yields were higher across all maturities,
shorter-dated paper outperformed longer-dated peers,
underpinned by expectations for more rate cuts and driving the
2/10-year yield curve to its steepest level since February.
U.S. Treasuries fell for a third straight day as debt
supply issues weighed on investor sentiment.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
33/32 in price to yield 3.78 percent. The 2-year U.S. Treasury
note <US2YT=RR> slipped 8/32 in price to yield 1.69 percent.
The low-yielding yen fell from a three-year high against
the euro and a six-month peak versus the dollar that it hit the
previous day, although it later pared some losses.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.38 percent at 81.222. Against
the yen, the dollar <JPY=> was up 1.10 percent at 100.34.
The euro <EUR=> gained 0.11 percent at $1.3644.
Gold slipped as investors cashed in gains that took the
precious metal to a nine-day high in the previous session.
Spot gold prices <XAU=> fell $20.05 to $886.45 an ounce.
U.S. light crude for November delivery <CLc1> fell $1.70 at
$87.25 a barrel. London Brent crude <LCOc1> fell $1.37 at
$82.99 a barrel.
Stocks clung to small gains overnight in Asia. MSCI's index
of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 2.05
percent after a 9 percent tumble on Wednesday, its biggest
single-day fall in at least two decades.
(Reporting by Ellis Mnyandu, Chris Reese and Wanfeng Zhou in
New York and Jamie McGeever, Tamawa Kadoya, Jane Merriman and
Jan Harvey in London; Writing by Herbert Lash; Editing by
Leslie Adler)
