(Updates with U.S. market activity, changes dateline, previous
LONDON)
NEW YORK, Jan 23 (Reuters) - U.S. and European stocks fell
on Wednesday as persistent worries about a U.S. recession undid
the boost that Tuesday's surprise Federal Reserve interest rate
cut gave to global markets.
Safe-haven government bonds and the yen, which tend to rise
as investors pare risky trades, gained ground. Commodities,
including oil, sagged on nagging fears that slower global
growth will hurt demand.
The MSCI world equity index <.MIWD00000PUS> was down on the
day and off 13.4 percent for the year, though just off a
15-month trough plumbed a day earlier.
"The market is pricing in a recession," said Brian
Gendreau, investment strategist at ING Investment Management in
New York. "And, of the earnings, the market is focusing on the
bad news because it confirms the market's predisposition."
The Dow Jones industrial average <> and the Standard &
Poor's 500 Index <.SPX> were down 0.3 percent while the Nasdaq
Composite Index <> lost 0.8 percent.
A weak profit outlook from iPod maker Apple Inc <AAPL.O>
helped push the Nasdaq composite index across a bear market
threshold in early trading.
The Fed on Tuesday slashed its key federal funds rate by
three-quarters of a percentage point -- the largest cut in more
than 23 years -- to 3.5 percent a week ahead of its scheduled
meeting, underscoring the risks facing the U.S. economy.
Investors believe a lot more needs to be done by the U.S.
central bank to shore up the U.S. economy, which some see on
the brink of recession, hit by a slumping housing market and
tight credit. Markets have priced in a further half-point rate
cut at next week's Fed meeting. <FEDWATCH>
EUROPE LOWER
After rising as much as 1.6 percent, the FTSEurofirst 300
<> index of top European shares reversed direction to be
down 1.8 percent.
Worries about profits and bad debt write-downs were taking
a toll on banks such as Societe Generale <SOGN.PA>.
Asian markets did manage gains earlier in the global
session, with Japan's benchmark Nikkei <> rising 2 percent
-- but those gains did not flow through to Europe. Analysts
said gains in Japan could have been due to the 16 percent
decline in the Nikkei this year, which made the index more than
due for a rebound.
Commodities were vulnerable. Copper <MCU3> was down slightly
on the London Metal Exchange, while U.S. crude <CLc1> fell more
than a $1 to $87.82 a barrel.
"The Fed's move implied that the problems in the system are
much worse than we expected," said Eugen Weinberg at
Commerzbank in Germany.
BONDS, YEN UP
U.S. government bond prices extended gains after U.S.
equity markets opened lower, accelerating the safe-haven bid
for Treasuries.
The benchmark 10-year Treasury note's price traded up for a
yield of 3.37 percent <US10YT=RR>, down from 3.42 percent late
on Tuesday. It was the first dip below 3.4 percent since
mid-2003. The 10-year Bund yield <EU10YT=RR> slipped to 3.91
percent. Bond yields move inversely to prices.
In the currency market, the dollar shed 0.8 percent against
the yen to 105.59 <JPY=> on the day, while the euro slid 1.3
percent to 154.24 yen <EURJPY=>.
Falling stock markets are typically seen as a sign that
investors are wary of taking on too much risk.
In currency markets, this translates into selling
higher-yielding units for low-yielding currencies like the
yen.
(Reporting by Nick Olivari, Kristina Cooke and Ellis Mnyandu
in New York, Ian Chua in London; Editing by Jonathan Oatis)
