(Updates with Wall Street outlook, state of credit markets,
euro zone investor sentiment)
By Jeremy Gaunt, European Investment Correspondent
LONDON, March 10 (Reuters) - Recession fears following the
biggest U.S. job losses in five years mixed with renewed strains
in the credit market to depress stocks on Monday, although Wall
Street looked set for a positive start after last week's losses.
European shares were flat, up from early losses. Japan's
benchmark Nikkei index <> closed at a 2-1/2-year low.
The dollar was generally weaker and investors were seeking
safety in government bonds.
"The real problem right now is the United States, with the
final toll of the subprime crisis still unknown," said Katsuhiko
Kodama, senior strategist at Toyo Securities Co. in Tokyo.
Worries that the world-leading U.S. economy is heading for
or is already in recession were fuelled on Friday when the U.S.
Labor Department said 63,000 non-farm jobs had been eliminated
in February, in contrast to Wall Street economists' forecasts
that 25,000 jobs would be added.
Investors have already been pricing in a decline in U.S.
growth but are not clear how far the economy will fall or how
much impact it will have on other economies.
Sentiment among euro zone investors, for example,
deteriorated to the worst in more than 2-1/2 years this month.
The March index from a survey of 836 European investors by
the Sentix research group fell to 0.4, the lowest level since
July 2005 and a ninth consecutive decline. It was 4.3 in
February.
At the same time, concerns have risen again over the health
of the credit market. U.S. and European credit spreads have been
widening.
The Federal Reserve announced a series of term repurchase
operations on Friday totalling $200 billion to ease liquidity
pressures, adding to a sense that the money markets are in poor
shape.
Barclays Capital noted that liquidity in traditional
European government bond markets has all but dried up.
"Markets are dysfunctional, positions are being liquidated
as stop losses are being reached, and there are no players
willing (or able) to take opposite positions at this
stage," it said in a note.
VOLATILITY
With this mix of worries as a backdrop, stock markets were
on the back foot.
MSCI's main gauge of world shares <.MIWD00000PUS>, a
benchmark for many professional investors, was down 0.3 percent
for a more than 11 percent loss since the beginning of the year.
In Europe, the pan-European FTSEurofirst 300 index <>
was reversing earlier losses on the better Wall Street outlook,
but was up just 0.1 percent.
Earlier, Japan's Nikkei finished down 250.67 points or 2
percent at 12,532.13, its lowest since Sept. 1, 2005. The
broader TOPIX <> closed down 1.9 percent at 1,224.39.
Investors were generally seeking safer assets.
Euro zone government bond futures, for example, opened
higher with the June Bund future <FGBLM8> up 31 ticks at 117.72.
The two-year Schatz yield fell 5 basis points to 3.209
percent <EU2YT=RR> as investors bought the paper. The yield on
the benchmark 10-year Bund was slightly lower at 3.760 percent
<EU10YT=RR>.
Top-rated German bonds were particularly in demand. The gap
between their yields and the higher returns investors sought to
hold other euro zone government bonds was close to the widest
seen since the euro's inception in 1999.
Gold <XAU=> was priced around $970 an ounce, for a
year-to-date gain of nearly 17 percent.
On currency markets, the yen and Swiss franc gained and the
dollar slipped toward record lows.
"It's a carry-over from last week's payrolls data and the
credit stories rumbling on," said Chris Turner, head of FX
strategy at ING.
The dollar fell around 0.5 percent on the day to 102.26 yen
<JPY=>, but held above an eight-year low of 101.41 yen struck on
Friday, according to Reuters data.
The euro rose 0.1 percent to $1.5362 <EUR=>, edging back
towards a record high of $1.5459 hit on Friday.
The dollar index, which measures the dollar's value against
a trade-weighted basket of six major currencies, fell to 72.881
<.DXY>, edging back towards a record low of 72.462 hit on
Friday.
(Editing by Ruth Pitchford)
