(Adds U.S. trade, London close; changes byline, previous
LONDON)
By Herbert Lash
NEW YORK, Jan 10 (Reuters) - U.S. stocks turned up after
Federal Reserve Chairman Ben Bernanke said the Fed is ready for
"substantive" action to counter a weakening economy, while
European shares fell on Thursday to their lowest point this
year.
The euro climbed across the board after European Central
Bank flagged more rate increases in the euro zone because of
persistent inflation pressures.
Gold targeted $900 as Bernanke's comments, a weaker dollar
and bargain hunting lifted spot prices of the yellow to new
record highs.
Oil tumbled to below $94 a barrel as concerns about a wider
economic slowdown raised the possibility of weakening energy
demand not just in the United States, but in Europe too.
A major American bank's profit warning and worries about a
global credit crisis had weighed on shares on both sides of the
Atlantic before Bernanke said the U.S. economic outlook had
worsened and more rate cuts may be needed lifted U.S. stocks.
"We stand ready to take substantive additional action as
needed to support growth and to provide adequate insurance
against downside risks," Bernanke said in prepared remarks.
"This is what the markets were hoping he would say and it
qualifies that the Fed will likely cut rates by 50 basis
points. Reaction to these comments is reassuring," said Steve
Goldman, market strategist at Weeden & Co. in Greenwich,
Connecticut.
The Dow Jones industrial average <> was up 26.42
points, or 0.21 percent, at 12,761.73. The Standard & Poor's
500 Index <.SPX> was down 1.26 points, or 0.09 percent, at
1,407.87. The Nasdaq Composite Index <> was down 9.38
points, or 0.38 percent, at 2,465.17.
"I think the initial pop was a kneejerk reaction. You've
seen more sellers start to come in off those higher levels,"
said Michael James, senior trader at regional investment bank
Wedbush Morgan in Los Angeles.
The sharp drop in crude prices had weighed on energy stocks
and U.S. retailers reported mostly gloomy December sales
results on Thursday, hurt by snowstorms as well as deep
discounting, which added to investor worries.
A profit warning from credit card issuer Capital One
Financial Corp's <COF.N> sparked concerns on Wall Street and in
European equity markets. Capital One blamed higher provisions
for bad debts and additional legal reserves for its warning.
The FTSEurofirst 300 <> index of top European shares
ended down 0.78 percent at 1,437.72 points, with shares of
banks, oil and chemicals among the worst performers. Shares hit
their lowest point so far this year.
Alliance & Leicester <ALLL.L> fell 4 percent, HBOS <HBOS.L>
slipped 4.3 percent and Barclays <BARC.L> lost 1.3 percent.
Among oil companies, BP <BP.L> fell 0.9 percent, Royal
Dutch Shell <RDSa.L> lost 1.3 percent and Total <TOTF.PA>
dropped 1.7 percent.
ECB President Jean-Claude Trichet cautioned that economic
growth in the euro zone could slow, but he also said the ECB's
policy was not neutral and it was ready to take pre-emptive
action against inflation if needed.
"Rate cuts are clearly off the agenda for now," said CIBC
economist Audrey Childe-Freeman.
Euro zone government bond futures extended losses after the
Bank of England held UK interest rates steady at 5.5 percent,
wrong-footing investors who had bet on a cut February.
"If they don't deliver now, they will still be forced to
deliver because the economy is weakening," said Jason Simpson
at ABN AMRO in London.
Spot gold <XAU=> hit a record $894.90 an ounce on Thursday
as the dollar slid, after Bernanke's comments. A weaker dollar
makes gold cheaper for holders of other currencies and often
lifts bullion demand.
Fears the U.S. economy could slip into a recession have
grown over the past several weeks, which could potentially
crimp oil demand from the world's top consumer.
In New York, U.S. light sweet crude oil <CLc1> fell $1.65
to $94.02 a barrel, while London Brent crude <LCOc1> shed $1.78
to $92.59.
U.S. Treasury debt prices traded little changed ahead of
Bernanke's speech. The benchmark 10-year U.S. Treasury note
<US10YT=RR> was steady in price to yield 3.83 percent.
(Additional reporting by Bate Felix, Santosh Menon and Atul
Prakash in London, Karolina Slowikowska in Frankfurt, and John
Parry, Frank Tang, Gertrude Chavez-Dreyfuss and Ellis Mnyandu
in New York)
