* Dollar, yen rise as risk outlook sours; euro falls
* Government debt dips on stronger-than-expected U.S. data
* Oil falls nearly 4 percent on global demand worries
(Updates with close of U.S. markets)
By Herbert Lash
NEW YORK, May 15 (Reuters) - U.S. stocks and oil prices
turned south on Friday on resurgent worries following the
recent rally in the face of economic data that still show a
mixed picture of when economies will pull out of a deep global
recession.
The dollar and yen rose as worries persisted about global
prospects despite better-than-expected U.S. economic news,
prompting investors to seek shelter in the two currencies.
Gold climbed to a six-week high after data showed U.S. core
inflation rose more than expected in April, boosting the
precious metal's appeal as a hedge against rising prices.
Oil fell toward $56 a barrel, pressured by forecasts of
weak global demand and the stronger dollar.
U.S. economic reports that suggested the recession's worst
phase was past were eclipsed by worries about weak demand for
oil.
Reports showing the euro-zone economy contracted at its
fastest pace on record added to worries on when economies will
turn the corner.
The euro-zone economy shrank 2.5 percent quarter-on-quarter
at the end of March, and 4.6 percent from the same period a
year ago, driven by a plunge in German output. [].
"We had some negative news coming from Europe earlier
today," said Michael Woolfolk, a senior currency analyst at The
Bank of New York Mellon, noting the "market remains jittery."
U.S. stocks turned lower after early gains due to the
expiration of option contracts and a fresh assessment of a jobs
report on Thursday that was worse than expected, said Rick
Meckler, president of LibertyView Capital Management in New
York.
"Yesterday's rally, given the news, caught people off guard
and left the market in a place where no one's quite sure of the
next direction," Meckler said.
Equity options and some options on stock indexes stopped
trading at Friday's close. Options expiration is typically
orderly, but volatility can occur as players unwind positions
against stock and index products.
The CBOE volatility index <.VIX> jumped 6.1 percent.
The Dow Jones industrial average <> closed down 62.68
points, or 0.75 percent, at 8,268.64. The Standard & Poor's 500
Index <.SPX> fell 10.19 points, or 1.14 percent, at 882.88. The
Nasdaq Composite Index <> declined 9.07 points, or 0.54
percent, at 1,680.14.
European shares closed higher, with gains for most banks
outweighing losses for defensive plays such as telecoms.
The FTSEurofirst 300 <> index of top European shares
rose 0.5 percent to close at 839.94 points. Over the week, the
index fell 3.1 percent, but is up 30 percent from a lifetime
low on March 9.
But analysts were skeptical about when, and how strongly,
an economic recovery will come through.
"We've had a spectacular rally," said Philip Lawlor, chief
portfolio strategist at Nomura. "Risk appetite has rebuilt. The
question is about more green shoots.
"I don't think the data is actually going to turn positive
for another six or nine months," he said.
U.S. and euro-zone government debt slipped after U.S.
industry and consumer sentiment reports bolstered hopes the
economy might soon start to recover.
U.S. industrial production fell 0.5 percent in April, a
more modest pace than in recent months and less than the 0.6
percent economists had expected. []
The data dimmed the allure of safe-haven investments such
as U.S. Treasuries. Separate reports showing improved national
consumer sentiment and a slower rate of contraction in New York
state manufacturing this month also trimmed flight-to-safety
bids.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
13/32 in price to yield 3.14 percent. The 2-year U.S. Treasury
note <US2YT=RR> fell 1/32 in price to yield 0.86 percent.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.63 percent at 82.952.
The euro <EUR=> fell 1.03 percent at $1.3492. Against the
yen, the dollar <JPY=> was down 0.78 percent at 95.12.
Equity market losses and moderate gains in the dollar
against other currencies also encouraged selling in the
commodities markets.
U.S. crude <CLc1> for June delivery fell $2.28 to settle at
$56.34 a barrel, down from a six-month high of more than $60
hit earlier this week. London Brent <LCOc1> for July fell $2.61
to $55.98 a barrel.
The losses came after the International Energy Agency, the
Energy Information Administration, and the Organization of
Petroleum Exporting Countries downgraded in recent days their
forecasts for global energy demand in 2009.
U.S. gold futures for June delivery <GCM9> settled up $2.90
at $931.30 an ounce in New York.
Overnight in Asia stocks rose as investors bought shares
that would benefit from a global recovery. MSCI's index of Asia
Pacific stocks outside Japan <.MIAPJ0000PUS> rose 1.7 percent,
while Japan's Nikkei share average <> added 1.9 percent,
(Reporting by Edward Krudy, Gertrude Chavez-Dreyfuss and
Burton Frierson in New York; Brian Gorman, Ian Chua, Christina
Fincher and Joe Brock in London; Writing by Herbert Lash;
Editing by Leslie Adler)
