(Updates with Citigroup results, Wall Street outlook)
By Jeremy Gaunt, European Investment Correspondent
LONDON, Jan 15 (Reuters) - Worries about the global economy
and jitters over major U.S. bank earnings knocked equities back
on Tuesday and kept the dollar weak, while gold fell from its
all-time highs.
Citigroup <C.N> reported earnings-per-share losses that were
nearly twice what was expected and cut its dividend, but it also
said it had fewer write-downs from the credit crisis than
markets had expected.
Equity markets and U.S. stock index futures pared some of
their earlier declines but remained lower, pointing to a weak
start on Wall Street.
State Street <STT.N> and US Bancorp <USB.N> were also due to
release fourth-quarter earnings reports later in the day.
Investors have been focused on banks to see how hard the
credit crunch has hit them and what is the overall state of the
industry.
Wall Street, meanwhile, got a boost on Monday when
International Business Machines <IBM.N> came out with
better-than-expected results, suggesting that the gloom about
financials may not necessarily have spread.
European and Japanese equities focused on economic worries.
The FTSEurofirst 300 <> index of top European shares
was down 0.8 percent, weakened among other things by Britain's
largest retailer Tesco <TSCO.L> which missed sales forecasts.
Germany's ZEW also reported that German investor sentiment
declined more than expected.
"The outlook for markets is all linked to whether we are in
a mid-cycle slowdown or global recession and the problem is that
the two of them look very, very similar at the start, but have
different market consequences," said Andrew Lynch, European fund
manager at Schroders.
Earlier, Japan's Nikkei <> ended below 14,000 for the
first time in 26 months. It closed down 1 percent at 13,972.63
and the broader TOPIX index <> lost 2 percent to 1,350.20.
GOLD, DOLLAR, BONDS
The dollar matched Monday's seven-week lows against the yen
on expectations that U.S. economic data and banking results
could boost the case for aggressive, growth-boosting interest
rate cuts by the Federal Reserve.
Futures markets are now reflecting a roughly 50-50 chance of
the Fed slashing interest rates by three-quarters of a
percentage point to 3.50 percent by the end of the month.
The dollar fell 0.4 percent to 107.76 yen <JPY=>. Below
107.20 would take it to 2-1/2 year lows. The euro was steady on
the day at $1.4869 after stopping about half a cent below
November's record high of $1.4966 on Monday <EUR=>.
Spot gold <XAU=> fell back from Monday's all-time high of
$914 an ounce. It was trading around $904, held high by economic
worries and the weak dollar.
Euro zone government bond prices were flat to lower. The
interest rate-sensitive two-year Schatz yield <EU2YT=RR> was at
3.691 percent and the 10-year Bund yield <EU10YT=RR> was down a
bit at 4.0448 percent.
(Editing by Ruth Pitchford)
