(Recasts, updates prices, adds comment)
NEW YORK, Jan 23 (Reuters) - U.S. and European stocks slid
on Wednesday, hammered by persistent worries about a U.S.
recession, one day after the Federal Reserve's surprise
interest rate cut boosted 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.
European stocks closed at their lowest level in 1-1/2 years
on Wednesday, as fears of more mortgage-related write-downs
again hit bank shares.
In the United States, all three major stock indexes fell
more than 1 percent as disappointing outlooks from technology
leaders Apple Inc <AAPL.O> and Motorola Inc <MOT.N> added to
recession fears.
"When the Fed cuts 75 basis points, stocks are supposed to
go up," said T.J. Marta, fixed income strategist at RBC Capital
Markets. "That's not happening. There's a lot of dread out
there."
The Dow Jones industrial average <> was down 186.15
points, or 1.55 percent, at 11,785.04. The Standard & Poor's
500 Index <.SPX> was down 23.78 points, or 1.81 percent, at
1,286.72. The Nasdaq Composite Index <> was down 62.46
points, or 2.72 percent, at 2,229.81.
The weak profit outlook from iPod maker Apple helped push
the Nasdaq composite index across a bear market threshold in
early trading.
"The market is pricing in a recession," said Brian
Gendreau, investment strategist at ING Investment Management.
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
policy-setting 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 closed down 3.22 percent
at 1,262.40 points.
Worries about profits and bad debt write-downs took a toll
on banks such as Societe Generale <SOGN.PA>.
Asian markets managed gains earlier in the global session,
with Japan's benchmark Nikkei<> rising 2 percent. Analysts
said the 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 as recession fears gripped
markets. Copper <MCU3> was down slightly on the London Metal
Exchange, while U.S. crude <CLc1> fell more than 2 percent to
$87.25 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
The recession fears fueled safe-haven buying of U.S.
government bonds, sending U.S. Treasuries higher and pushing
the benchmark yield briefly to its lowest level since June
2003.
The benchmark 10-year Treasury note's price traded with a
yield of 3.32 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 3.89
percent. Bond yields move inversely to prices.
In the currency market, the dollar shed 1 percent against
the yen to 105.59 <JPY=> on the day, while the euro slid 1.5
percent against the 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; Additional reporting by Lucia
Mutikani, Richard Leong, Kristina Cooke and Ellis Mnyandu in
New York, Ian Chua in London and Elaine Lies in Tokyo; Editing
by Leslie Adler)
