(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, March 13 (Reuters) - Financial markets came under
heavy pressure on Thursday as slumping retail sales provided
new signs of a deteriorating U.S. economy and
inflation-sensitive gold shot through $1,000 an ounce for the
first time as the dollar hit new lows.
European shares extended losses to post almost a 2 percent
decline and U.S. stock index futures slid 1 percent after a
Commerce Department report said U.S. retail sales plunged 0.6
percent in February.
U.S. gold futures rallied to hit a record $1,000 an ounce,
fueled by the weaker dollar, strong investment demand and
inflation fears sparked by rising oil prices that this week
touched a record now above $110 a barrel.
Fear grew that world economies are deteriorating despite
moves by the U.S. Federal Reserve and other central banks to
pump more cash into a credit market that investors have started
to shun. Markets in Europe and Asia began falling even before
the negative U.S. economic data came out.
The markets were reacting in part to the latest sign the
credit market's woes were not relieved by the central banks'
recent moves, as an affiliate of U.S.-based buyout firm Carlyle
Group, Carlyle Capital Group <CARC.AS> defaulted on about $16.6
billion of debt.
The dollar, meantime, hit another record low against the
euro and the greenback fell below 100 Japanese yen for the
first time in 12 years.
Gold surged past the $1,000 mark slightly before the
unexpected slide in U.S. retail sales was announced. Economists
were expecting a 0.2 percent rise. Excluding autos, sales fell
0.2 percent in February, a far weaker reading than the 0.2
percent gain economists had forecast.
S&P 500 futures <SPc1> fell 19.20 points, below fair value,
a pricing evaluation that accounts for interest rates,
dividends and time to expiration on the contract.
Dow Jones industrial average futures <DJc1> dropped 172
points, while Nasdaq 100 <NDc1> futures slid 24.75 points.
Investors shrugged off the euphoria experienced earlier in
the week from the Fed-led moves to provide liquidity to tight
credit markets.
"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."
The sinking dollar took most of the focus as it reflected
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 dollar fell to 100.20 yen <JPY=> from around 100.40 yen
after the data. Overnight, it fell to 99.77 yen, its lowest
level since 1995.
The recent currency moves have aroused concern 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.
HIGH OIL, LOW EQUITIES
The tumbling dollar poses a dilemma for the 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.
U.S. crude for April delivery <CLc1> struck a new high of
$110.70 a barrel.
London Brent crude for April <LCOc1>, which expires on
Friday, also hit a new peak at $106.80.
"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.
Financials led European shares sharply lower.
The FTSEurofirst 300 index <> was down 1.98 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.
(Reporting by Herbert Lash. Editing by Richard Satran)
