(Updates to New York close)
By Clive McKeef
NEW YORK, Jan 18 (Reuters) - World stocks fell further on
Friday, leading bond yields mostly lower, after an economic
stimulus package announced by President George W. Bush left
investors somewhat disappointed.
Bush called for a package of tax cuts and other measures
totaling around 1.0 percent of U.S. gross domestic product, or
up to $150 billion, after weak recent reports on employment,
retail sales, factory activity, and housing construction this
month suggested the United States -- the world's largest
economy --may be heading into recession.
Under consideration in the package announced by Bush are
ideas like tax rebates, incentives for businesses, and
extensions of unemployment insurance.
"The fear is that the plan and even the Fed may not have
enough firepower to turn the path to recession around," said
Richard Sparks, senior equities analyst at Schaeffer's
Investment Research in Cincinnati.
Earlier this week Federal Reserve Chairman Ben Bernanke
again pledged that the U.S. central bank was ready to act to
prop up economic growth, reinforcing expectations for interest
rates cuts at the Fed's next policy meeting on Jan. 29-30.
In the United States, the benchmark S&P 500 stock index on
Friday ended its worst week in 5-1/2 years.
Financial and telecommunications companies, including
insurer American International Group <AIG.N> and Sprint Nextel
Corp <S.N>, were among the top decliners on the S&P 500.
The Dow Jones industrial average <> was down 59.91
points, or 0.49 percent, at 12,099.30. The Standard & Poor's
500 Index <.SPX> was down 8.06 points, or 0.60 percent, at
1,325.19. The Nasdaq Composite Index <> was down 6.88
points, or 0.29 percent, at 2,340.02.
U.S. markets are closed on Monday for the Martin Luther
King Day holiday.
European stocks also ended lower, dropping for the 10th
time in 13 sessions as banks and insurers tumbled on renewed
worries over mortgage-related losses, while investors gave a
cold initial reception to the U.S. economic stimulus package.
The FTSEurofirst 300 <> index of top European shares
ended down 1.2 percent at 1,358.51, capping a dismal week
during which Europe's benchmark index lost 4.8 percent.
The FTSEurofirst 300 index has lost nearly 9.0 percent
since the beginning of 2008, as worries about the U.S. economy
tipping into recession knocked equity markets worldwide.
"The persisting pressure on the financials suggests the
credit crisis harbors further risks for overall market," Tammo
Greetfeld, equity strategist at HVB, wrote in a note.
He cited risks that the banks may have to take "provisions
for the credit risks emanating from a general deterioration in
the credit portfolio because of a slowing economy."
Earlier on Friday, Japan's Nikkei average <>
recovered from an early dive to end 0.6 percent higher at
13,861.29 points, lifted by expectations for the U.S. economic
stimulus package.
BOND YIELDS LOWER BUT U.S. DOLLAR STEADY
Bond yields also fell as stocks lost more ground on
investor fears the White House stimulus package might not keep
the U.S. economy from sliding into recession.
"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.
The U.S. two-year Treasury note <US10YT=RR> yield fell to a
three-year low around 2.35 percent, while European government
bond yields fell for the fourth straight week, with the two
year Schatz yield <EU2YT=RR> ending around 3.46 percent, and
the Japanese two-year note yield slipped to 0.575 percent.
The U.S. dollar was little changed though 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 market
growth will provide a counterbalance, a cyclical global
moderation now appears more likely," UBS said in a note to
clients.
The euro ended the week around $1.4626 <EUR=>, while
against the U.S. dollar the yen was steady around 106.6 yen
<JPY=>.
Investors said the dollar's problems are not over yet with
the longer-term outlook for the U.S. economy remaining bleak.
U.S. crude oil prices edged up to above $90 a barrel after
a three-day slide. On the New York Mercantile Exchange February
crude <CLG8> was up 42 cents at $90.55 per barrel. Crude oil
prices hit a record just over $100 a barrel on Jan. 3 before
slipping back on concerns about slowing demand due to the
threat of a global economic slowdown.
Gold also firmed slightly from a one-week low and ended
around <XAU=> $883.90 an ounce, after seeing a record around
$914 earlier this week.
"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.
(Additional reporting by Natsuko Waki in London, Blaise
Robinson in Paris, and Kristina Cooke in New York; Editing by
Leslie Adler)
