* US stock indexes tumble more than 2 percent
* Euro hits 7-mth low vs dollar on euro zone debt problems
* Greek, Portugal spreads, CDS widen; dollar firmer
* Oil, gold prices fall sharply
(Adds US trading)
By Natsuko Waki and Al Yoon
LONDON/NEW YORK, Feb 4 (Reuters) - The euro hit a
seven-month low to the dollar on Thursday as concern over
Greece's fiscal woes spread to other highly-indebted euro zone
countries, while world stocks accelerated their fall after
disappointing U.S. labor market data.
The European Union said on Wednesday Greece's plans to cut
the budget gap from 12.7 percent of gross domestic product in
2009 to below 3 percent in 2012 would not be easy to implement
but vowed to hold Athens to its pledges.
"The euro remains vulnerable and the market has now turned
its attention to Spain and Portugal," said BNP currency
strategist Ian Stannard. "Rallies have been short-lived."
The euro fell nearly 1 percent to $1.3761 <EUR=>, its
lowest since June 16, while the dollar <.DXY> rose 0.58 percent
against a basket of major currencies. The dollar fell 2 percent
against the yen, to 89.15 yen.
Political tension in Portugal over a regional spending bill
and a climbdown by the Spanish government over pension reform
added to the woes of peripheral euro zone states facing huge
challenges to curb budget shortfalls. For details see
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Portuguese five-year credit default swaps hit a record high
of 216,000 euros per 10 million euros of exposure, from 196,200
on Wednesday. Greek and Spanish CDSs also rose.
Global stocks slumped as the rising dollar hurt commodities
prices, and a surprising rise in unemployment insurance claims
underscored the slack pace of recovery in the U.S.
Commodities prices also slumped as gold fell more than 4
percent to three-month lows and crude oil futures sank more
than 5 percent.
U.S. light sweet crude oil <CLc1> fell $4.10 to $72.88 per
barrel, and spot gold prices <XAU=> fell $46.30, or 4.17
percent, to $1062.90. The Reuters/Jefferies CRB Index <.CRB>
was down 7.56 points.
First time jobless claims in the United States rose by
8,000 last week to 480,000, bucking the median forecast for a
drop of 10,000. The weekly number is now the highest since
mid-November and an ominous sign to a positive nine-month
trend.
The United States on Friday is likely to report businesses
added 5,000 jobs in January, after a loss of 85,000 in
December, according to the median forecast in a Reuters poll.
Data suggest "progress in the labor markets will be
painfully slow at best in 2010," said Keith Springer, president
of Capital Financial Advisory Services in Sacramento,
California. "Businesses have not shown any inclination to begin
hiring to any large extent."
The Dow Jones Industrial Average <> dropped 206.47
points, or 2.01 percent, to 10,064.08. The Standard & Poor's
500 Index <.SPX> declined 25.40 points, or 2.31 percent, to
1,071.88 and the Nasdaq Composite Index <> slid 47.58
points, or 2.17 percent, to 2,143.33.
Among materials shares, U.S. Steel Corp <X.N> fell 5.1
percent to $44.43 as the stronger dollar weakened commodity
prices. The S&P materials sector index <.GSPM> dropped 3.1
percent to its lowest level since early November.
The MSCI world equity index <.MIWD00000PUS> fell 2.43
percent while the FTSEurofirst 300 index <> lost 2.75
percent.
Banks took the most points off the European index.
Santander <SAN.MC>, the euro zone's biggest bank, lost more
than 9 percent after traders pointed to concerns over the
outlook for crisis-hit Spain and worries the bank is not doing
enough to address its property exposure.
Japanese stocks fell 0.46 percent <> with Toyota Motor
<6753.T> sliding further on its recall woes. Emerging stocks
<.MSCIEF> dropped 2.63 percent.
Demand for U.S. Treasury debt pushed yields lower, amid a
retreat in global stocks and fears over potential defaults by
European governments and the labor report.
"It definitely gives more fuel to the rally" in Treasuries,
said James Demasi, chief fixed-income strategist at Stifel
Nicolaus & Co in Baltimore. "Over the course of the week,
people had built in enough concession for next week's auction
in Treasuries. This gives them a reason to jump back in."
Yields on benchmark 10-year Treasury notes declined by 0.09
percentage point to 3.62 percent.
(Additional reporting by Neal Armstrong and Emily Flitter;
Editing by Padraic Cassidy)
