By Jeremy Gaunt, European Investment Correspondent
LONDON, Feb 20 (Reuters) - Oil prices near $100 and delays
in debt payments by an affiliate of private equity giant KKR
spooked financial markets on Wednesday, battering stocks and
driving the cost of corporate debt insurance to all-time peaks.
The Japanese yen gained as investors unwound riskier
currency trades.
Oil prices eased from their record high above $100 reached
on Tuesday, but were mainly correcting after a massive move. New
York crude <CLc1> was trading around $99 a barrel.
Heady prices for oil, along with other commodities such as
platinum, wheat and gold, are worrying investors because rising
inflation will make it harder for central banks to cut interest
rates to help spur ailing economies.
CIBC World Markets said in a note that the rising prices
along with slow economic growth were likely to rekindle fears of
stagflation.
In the meantime, investors have been shaken by a series of
reminders that the trouble in the credit markets that began last
summer has not gone away.
The latest omen came from KKR Financial Holdings <KFN.N>,
the listed affiliate of private equity group Kohlberg Kravis
Roberts & Co [].
In a filing with the U.S. Securities and Exchange Commission
on Tuesday it said it had delayed repayment of debt backed by
mortgage securities for the second time and begun a new round of
talks with creditors.
The news hit stocks and knocked jittery credit markets hard,
with the widely watched iTraxx Crossover index <ITRCRS5EA=GFI>
breaking above 600 basis points for the first time, a reflection
of soaring debt-insurance costs.
"The mood was generally bad already, and then this came out.
It really dented confidence," said Hiroaki Osakabe, fund manager
at Chibagin Asset Management in Japan.
It also followed Tuesday's news from Credit Suisse <CSGN.VX>
that it had marked down the value of asset-backed investments by
$2.85 billion.
The pan-European FTSEurofirst 300 index <> was down
around 1 percent, hit also by British lender Alliance &
Leicester <ALLL.L> taking a writedown and earnings from BNP
Paribas <BNPP.PA> failing to excite.
Earlier, Japan's benchmark Nikkei share average <>
closed down 3.3 percent at 13,310.37. The broader TOPIX <>
was down 3.2 percent at 1,302.72.
CURRENCY CAUTION
The yen firmed across the board as the raft of bad news from
the financial sector re-ignited risk aversion.
In foreign exchange, a more cautious stance on risk tends to
prompt investors to buy back the low-yielding Japanese currency
after using it as a source of cheap funding in relatively risky
carry trade bets on higher-return assets.
The dollar fell 0.2 percent to 107.54 yen <JPY=> and the
euro fell the same to 158.32 yen <EURJPY=>.
The euro was flat at $1.4720 <EUR=>. The wave of risk
reduction pushed the high-yielding Australian and New Zealand
dollars lower.
Yields on 10-year euro zone bonds <EU10YT=RR> drifted around
4 percent after coming under pressure on Tuesday on safe-haven
buying triggered by Credit Suisse.
(Additional reporting by Antonina Vorobyova; editing by Tony
Austin)
