By Clive McKeef
NEW YORK, Jan 18 (Reuters) - World stocks steadied on
Friday after sharp falls earlier this week as investors
digested the likely impact of an economic stimulus package
announced by President George W. Bush to help avert a potential
U.S. recession.
Major bond markets were also little changed after sharp
falls in yields earlier this week, and the U.S. dollar steadied
also.
Bush called for a package of tax cuts and other measures
totaling around 1.0 percent of U.S. gross domestic product, or
about $140 billion, amid bleak reports on retail sales and
other data this week suggesting a possible recession.
Under consideration in the talks with the Democratic-led
Congress are ideas like tax rebates, incentives for businesses,
and extensions of unemployment insurance.
"At first blush it appears it is a little less dramatic
than people were hoping for," said Peter Kenny, managing
director of Knight Equity Markets, Jersey City, New Jersey.
"Uncertainty is primarily the reason why the market has
gone lower. The market is hoping for help both fiscally and
monetarily that it can qualify as likely to have a real
impact," he said.
U.S. stocks fell on Friday on concerns that the White House
effort to boost the economy would not be enough to forestall a
recession.
Financial and telecommunications companies were among the
top declining sectors on the S&P 500, wiping out earlier gains
on optimism about earnings from bellwethers IBM <IBM.N> and
General Electric Co. <GE.N>.
The Dow Jones industrial average <> was down 31.95
points, or 0.26 percent, at 12,127.26. The Standard & Poor's
500 Index <.SPX> was down 8.07 points, or 0.61 percent, at
1,325.18. The Nasdaq Composite Index <> was up 3.60
points, or 0.15 percent, at 2,350.50.
European stocks fell for a fourth straight day as banks and
insurers tumbled on renewed worries over mortgage-related
losses, while investors gave a cold initial reception to a U.S.
economic stimulus package.
The FTSEurofirst 300 <> index of top European shares
closed 1.2 percent lower, at 1,358.51 points. Europe's
benchmark index closed a dismal week with a loss of 4.8
percent.
Earlier, Japan's Nikkei average recovered from an early
dive to end 0.6 percent higher on Friday, lifted by
expectations for the U.S. economic stimulus package. The Nikkei
<> ended the session up 0.6 percent at 13,861.29.
DEBT MARKETS AND DOLLAR STEADY
U.S. Treasury debt yields were little changed on Friday as
an early rebound in U.S. stocks lost steam on investor fears
the economic stimulus package might not be enough.
"It is probably going to be too little and too late," said
Mary Ann Hurley, vice president of fixed-income trading at D.A.
Davidson & Co. in Seattle.
Benchmark 10-year Treasury notes <US10YT=RR> were trading
with a yield around 3.64 percent.
European government bond yields fell, for the fourth
straight week, as the threat of a U.S. recession continued to
weigh on stock markets, boosting safe-haven flows.
The 10-year Bund yielding was trading around <EU10YT=RR>
3.964 percent, as expectations grow that the European Central
Bank will also start lowering its benchmark rate from the
current 4.0 percent in coming months after recent signs of a
slowdown in the euro zone economy.
Japanese government bonds yields slipped on Friday as
investors pushed into safe-haven debt even as Tokyo shares
staged a rebound from steep initial losses.
Japan's benchmark 10-year yield <JP10YTN=JBTC> edged down
to to 1.385 percent, back near a 28-month low hit the previous
day.
"The market is starting to recognize the possibility of a
BOJ rate cut, but it is not seriously pricing it in," said Maki
Shimizu, a bond strategist at UBS.
The U.S. dollar was little changed as investors weighed
the likely impact of the Bush fiscal package.
"The market is no longer viewing the U.S. economic slowdown
in isolation. Although domestic demand-based emerging growth
will provide a counterbalance, a cyclical global moderation now
appears more likely," UBS said in a note to clients.
The euro traded down 0.1 percent at $1.4644 <EUR=>. Against
the yen, the dollar rose 0.4 percent to 107.19 yen <JPY=>.
Investors cautioned that the dollar's problems are not over
yet with the longer-term outlook for the U.S. economy remaining
bleak.
"The market is definitely nervous about any risk of the ECB
signaling that rates have peaked, and that's keeping us in
relatively tight ranges," said Adam Cole, global head of
currency strategy at RBC Capital Markets.
U.S. crude oil steadied above $90 Friday, after a three-day
slide. On the New York Mercantile Exchange February crude
<CLG8> was up 62 cents at $90.75 per barrel.
Wednesday's $89.26 low was the weakest since crude fell to
$88.88 on Dec. 18. NYMEX crude hit a record $100.09 on Jan. 3.
Gold bounced from a one-week low on Friday after this
week's climb to a record above $900 an ounce.
Gold <XAU=> hit an intraday low of just over $870 an ounce
before rebounding to $879.90.
"External factors such as higher inflation expectations,
broader economic concerns, geopolitical tensions and Fed rate
easing are likely to drive prices higher," Barclays Capital
said in a report.
Gold saw a record high at $914 an ounce earlier this week.
(Additional reporting by Natsuko Waki in London and Kristina
Cooke in New York)
