* Global stocks sink on economic, company earnings worries
* U.S., euro zone bonds slip on supply, fiscal worries
* Crude oil prices rebound after tumbling nearly 10 pct
* Dollar at 7 1/2 year peak vs pound, euro at 6 week low
(Recasts with U.S. markets, changes dateline; previous
LONDON)
By Herbert Lash
NEW YORK, Jan 20 (Reuters) - Mounting fears about banks and
the global economy pushed stocks sharply lower around the world
on Tuesday, giving newly elected U.S. President Barack Obama a
grim reminder of the difficulties his administration faces.
U.S. and euro zone government bonds fell over worries about
the increased supply that will be needed to fund the mounting
debt that governments will take on for financial sector
bailouts and to lift economies from a sharp worldwide
downturn.
Concern that the euro zone will suffer a deep recession cut
the euro to a six-week low against the dollar. The euro traded
below $1.2900 for the first time since Dec. 10.
Sterling fell to a 7-1/2-year low after the Royal Bank of
Scotland on Monday announced the biggest loss in British
corporate history, setting a negative tone for the financial
sector both in Europe and the United States.
U.S. bank shares plummeted after State Street Corp <STT.N>,
the world's biggest money manager for institutions, said it
needs to raise capital. Stock in State Street lost about half
its value while shares of Bank of America <BAC.N> and Citigroup
<C.N> fell to their lowest levels since the early 1990s.
European banking shares also fell heavily, with Lloyds Bank
<LLOY.L> sliding 31 percent, Barclays <BARC.L> down 17 percent
and both BNP Paribas <BNPP.PA> and Societe Generale <SOGN.PA>
off 13 percent.
"Once you have lost confidence, it takes four to five times
longer to regain confidence," said Franz Wenzel, strategist at
AXA Investment Managers in Paris.
The environment remains shaky and more write-downs from bad
loans are likely from last year's fourth quarter and the first
quarter of 2009, Wenzel said.
The RBS loss "just goes to underscore that the financial
sector globally is under a lot of pressure and creating a lot
of sovereign problems," said Gail Dudack, chief investment
strategist at Dudack Research Group in New York.
Before 1 p.m., the Dow Jones industrial average <> was
down 147.66 points, or 1.78 percent, at 8,133.56. The Standard
& Poor's 500 Index <.SPX> was down 21.40 points, or 2.52
percent, at 828.72. The Nasdaq Composite Index <> was down
47.78 points, or 3.12 percent, at 1,481.55.
In Europe, the FTSEurofirst 300 <> index of top
European shares closed down 2.12 percent, or 16.75 points, at
774.48.
Amid the economic gloom and ongoing financial woes, the
dollar benefited from flight-to-quality bids and hopes Obama
will soon lead the United States out of a year-long recession
that looms as the worst since the Great Depression.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.87 percent at 85.879. Against
the yen, the dollar <JPY=> fell 0.56 percent at 90.16.
The euro <EUR=> fell 1.19 percent at $1.2954.
"The inauguration is crystallizing all expectations that
the U.S. economy will be the first to recover from the
recession," said Marco Annunziata, global chief economist at
UniCredit, Italy's second-biggest bank, in London.
Bond prices fell. The benchmark 10-year U.S. Treasury note
<US10YT=RR> was down 36/32 in price to yield 2.46 percent. The
30-year U.S. Treasury bond <US30YT=RR> was down 100/32 in price
to yield 3.05 percent.
In Europe, investors demanded record high premiums to buy
several non-benchmark German debt on worries there could be
more downgrades after Standard & Poor's cut the credit ratings
of both Spain and Greece recently.
Oil reversed losses and climbed above $37 a barrel on
wintry weather in the northern hemisphere and reports that OPEC
was tightening supply. Crude had fallen more than $3 after
Russia's Gazprom <GAZP.MM> resumed pumping gas into Ukraine on
its way to Europe, ending an increased need for oil products to
replace gas. []
U.S. light sweet crude oil <CLc1> rose $1.67 to $38.18 a
barrel.
Spot gold prices <XAU=> rose $23.05 to $858.45 an ounce.
Daniel Smith, a Standard Chartered analyst, said strong
investor flows into gold-linked products such as
exchange-traded funds offset weaker jewelery demand.
"People are slowly building long positions in gold and
commodities more generally," Smith said.
The MSCI index for Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> slid 3.2 percent. Japan's Nikkei <> fell
2.3 percent.
(Reporting by Leah Schnurr, Ellen Freilich, Nick Olivari in
New York and Atul Prakash, Jon Hopkins, Joe Brock, Dominic Lau,
Ian Chua and Jan Harvey in London; writing by Herbert Lash;
Editing by Leslie Adler)
