(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, April 9 (Reuters) - Oil prices surged to fresh
record highs on Wednesday as a new spate of recession fears and
a bleak corporate profit outlook pulled down stocks and boosted
demand for less-risky investments like government bonds.
The International Monetary Fund also forecast the U.S.
economy will tip into recession this year and said there is a
25 percent chance that world growth will slow to 3 percent or
less.
A senior U.S. Treasury Department official said that
forecasts of potential U.S. and worldwide recessions were
unnecessarily bleak, but he conceded a housing downturn and
market turmoil were weighing on global growth prospects.
U.S. equity indexes slipped about 1 percent and European
shares almost as much as the sharp rise in oil prices dampened
the outlook for corporate results and United Parcel Service
Inc's <UPS.N> warned late Tuesday of an earnings shortfall.
The dollar eased against a basket of currencies as traders
snapped up the euro in anticipation of more tough inflation
talk and signals from the European Central Bank that it was not
ready to cut interest rates anytime soon.
Gold firmed, tracking oil's surge, but gains in U.S.
Treasury debt prices were curbed by a report that the Federal
Reserve is considering new measures to resolve the credit
crunch should the steps taken so far fail to take hold.
The lowered profit forecast from UPS fueled fears that
fallout from the U.S. housing slump and credit crisis is
spreading. General Electric Co <GE.N>, which reports results on
Friday, was the heaviest drag on the benchmark S&P 500 Index,
shedding 1.4 percent.
"All of these deep industrials are under pressure on the
fear that this downturn we're in is going to broaden beyond
housing," said Stanley Nabi, vice chairman at Silvercrest Asset
Management Group in New York.
The S&P Retail index <.RLX> fell 2.32 percent, its fifth
straight day of losses and longest losing streak since a
seven-day slide that ended in early January.
Based on the latest available data, the Dow Jones
industrial average <> fell 49.18 points, or 0.39 percent,
to 12,527.26. The Standard & Poor's 500 Index <.SPX> fell 11.05
points, or 0.81 percent, at 1,354.49. The Nasdaq Composite
Index <> declined 26.64 points, or 1.13 percent, at
2,322.12.
European shares also fell, pressured by financial shares on
the view that they may have to reveal more damage to earnings
inflicted by the still simmering global credit crisis.
European shares fell, pressured by financials, ahead of an
ECB interest rate decision on Thursday that could make the euro
stronger and hurt stock prices. The ECB is forecast to maintain
interest rates at 4 percent.
A clutch of macroeconomic data on both sides of the
Atlantic expected on Thursday would also provide more evidence
of a U.S. and European slowdown.
The FTSEurofirst 300 <> index of top European shares
ended down 0.72 percent at 1,308.92.
Pharmaceuticals were led lower by Switzerland's Roche
<ROG.VX>, which fell 3.1 percent on talk that its U.S. partner,
Genentech Inc <DNA.N> would report weak results on Thursday.
Genentech ended down 1.7 percent.
A resurgence in oil prices, which will exact a toll on U.S.
consumers who already are struggling with loan payments and a
faltering job market, added to the sour economic outlook.
"It takes more money out of consumers' pockets. It's a drag
on growth. More people are starting to think about a
recession," said Michael Franzese, head of government bond
trading at Standard Chartered in New York.
Stocks also fell in Asia as financial shares were hit by
renewed concerns about credit-related losses after U.S. savings
and loan bank Washington Mutual <WM.N> on Tuesday said it
expects a large quarterly loss, a reminder the global credit
crisis has not abated.
The MSCI measure of Asian stocks outside Japan
<.MIAPJ0000PUS> fell 0.6 percent by 0550 GMT, erasing earlier
modest gains to post losses for a second day in a row.
Japan's Nikkei average <> fell 1.2 percent.
Oil prices jumped after U.S. crude oil stockpiles fell by
3.2 million barrels in the week to April 4 as imports declined,
the U.S. Energy Information Administration said. Analysts
expected a 2.2 million-barrel increase in stocks.
"It's bullish across the board. A very low crude import
number got us a surprise draw there," said Tim Evans, an
analyst at Citigroup Futures Research. "Imports are basically
running behind year-ago levels."
Oil surged to a record high over $112 a barrel after a
government report showed a sharp drop in U.S. inventories ahead
of the summer driving season.
U.S. front-month crude <CLc1> settled up $2.37, or 2.2
percent, at $110.87 a barrel -- a record high close -- after
peaking at $112.21 and eclipsing the previous record of $111.80
hit March 17. London Brent <LCOc1> settled $2.13 higher at
$108.47 a barrel, also a record, after hitting an all-time high
of $109.50.
The benchmark 10-year Treasury note's price <US10YT=RR>,
which moves inversely to its yield, gained 23/32 to yield 3.48
percent, down from 3.56 percent late Tuesday.
Two-year notes <US2YT=RR> outperformed their longer-dated
counterparts for a second straight day. They were up 8/32 in
price to yield 1.75 percent, down from 1.89 percent on
Tuesday.
The dollar fell against a basket of major trading-partner
currencies, with the U.S. Dollar Index <.DXY> down 0.58 percent
at 71.872. The euro <EUR=> firmed 0.77 percent to $1.5821, and
against the yen, the dollar <JPY=> fell 0.80 percent to
101.78.
U.S. gold futures in New York finished sharply higher,
driven by soaring oil prices and the dollar's slump.
Gold futures largely tracked crude oil's strength. But
speculation that the ECB meeting on Thursday and a G7 meeting
of economic powers in Washington starting on Friday could ease
credit worries, dented gold's safe-haven appeal.
Gold for June <GCM8> delivery settled up $19.50, or 2.1
percent, at $937.50 an ounce, reversing early losses.
(Additional reporting by Matthew Robinson, Kevin Plumberg,
John Parry, Vivianne Rodrigues and Frank Tang in New York)
