(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
* Dollar dips as US housing data damps rate hike outlook
* U.S. stocks slide after Goldman points to bank weakness
* Oil eases amid reconsideration of Saudi output plans
By Herbert Lash
NEW YORK, June 17 (Reuters) - The dollar slid on Tuesday
after U.S. housing starts plunged to their lowest level in more
than 17 years and U.S. stocks fell on a report that said banks
may need to raise $65 billion in capital due to the global
credit crisis.
U.S. and euro zone government bonds rallied on growing
expectations the Federal Reserve, Bank of England and European
Central Bank will resist aggressive interest rate hikes to
fight rising signs of inflation.
European equities rose as Daimler's plans to resume buying
back up to 6 billion euro ($9.31 billion) in its stock powered
a rally in automaker shares.
A host of banking stocks fell sharply after Goldman Sachs
analysts cut the price target on several shares, including Bank
of America <BAC.N> and Washington Mutual <WM.N>, citing the
need for the U.S. banks to raise billions in additional
capital to cope with the credit crisis.
U.S. stocks initially rose after Goldman Sachs Group Inc
<GS.N> posted quarterly profits that exceeded expectations by
avoiding major losses on assets slammed by the credit crisis.
It was the second day financials ended up at odds on either
side of the Atlantic. Banks gained in Europe on hopes the worst
might be over for the battered sector but fell in U.S. markets
after Goldman Sachs said the credit crisis will not peak until
2009.
The S&P Financial index <.GSPF> of 90 stocks was down about
2.1 percent, with less than 10 shares posting gains.
Just before 1 p.m., the Dow Jones industrial average <>
was down 78.57 points, or 0.64 percent, at 12,190.51. The
Standard & Poor's 500 Index <.SPX> was down 5.22 points, or
0.38 percent, at 1,354.92. The Nasdaq Composite Index <>
was down 8.91 points, or 0.36 percent, at 2,465.87.
The FTSEurofirst 300 index <> of top European shares
closed 0.5 percent higher at 1,268.90 points. Shares were also
lifted by miners thanks to firm metal prices and a newspaper
report that China's state-owned aluminum producer Chinalco was
keen to buy a range of global resource assets.
Rio Tinto <RIO.L>, seen as a potential takeover target,
rose 3.8 percent.
Daimler climbed 3.6 percent, pulling the DJ Stoxx European
auto sector index <.SXAP> 2.7 percent higher.
A big jump in energy costs pushed U.S. producer prices up
sharply in May and housing sickened further, underscoring the
Fed's dilemma of tackling weak growth amid high inflation.
Interest rate futures showed the prospect for a Fed hike in
August fell to about 60 percent from 90 percent on Monday.
The dollar's losses were limited, with traders also paring
expectations of tighter monetary policy in the euro zone after
ECB Executive Board member Lorenzo Bini Smaghi said a
quarter-point hike should bring inflation below its target.
"The worse than expected U.S. housing starts and building
permits are a stark reminder for fed funds futures to not get
ahead of themselves in pricing rising chances of a rate hike
later this year," said Ashraf Laidi, chief currency strategist
at CMC Markets in New York.
Debt prices rallied on press reports discussing the outlook
for Fed policy encouraged markets to tone down their
expectations for near-term interest-rate hikes.
"A lot of articles in the past couple of days" seem to be
saying "that the market has placed too much (emphasis) on Fed
rate hikes in months to come," said Sean Murphy, Treasury
trader at RBC Capital markets in New York.
Oil steadied near $134 after touching a record high near
$140 on Monday, with the market looking ahead to a meeting of
oil producers and consumers in Jeddah at the weekend.
Gold slipped a touch as oil languished but it recovered
from session lows as the dollar softened against the euro after
disappointing U.S. economic data.
U.S. corn and soybean prices climbed as flooding in the
U.S. Midwest hurt crop prospects and as Argentine farmers kept
up their protests against a government tax on soy exports.
"Everyone is trying to figure out how much damage has been
done," said Jason Roose, analyst for U.S. Commodities, Des
Moines, Stocks in Asia were mixed, with investors
struggling between fears about high inflation after oil prices
surged to a fresh record and optimism that the worst may be
over for the financial industry.
The MSCI index of stocks in the Asia-Pacific region outside
of Japan also rose three-quarters of a percent <.MSCIAPJ>.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
17/32 to yield 4.21 percent. The 30-year U.S. Treasury bond
<US30YT=RR> added one-quarter point to yield 4.78 percent.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 0.21 percent at 73.516. Against the
yen, the dollar <JPY=> was off 0.22 percent at 107.95.
The euro <EUR=> rose 0.32 percent at $1.5515.
U.S. light sweet crude oil <CLc1> fell $1.30 to $133.31.
Spot gold prices <XAU=> rose $3.15 to $884.45.
(Reporting by Jennifer Coogan, Lucia Mutikani and Ellen
Freilich in New York and Jane Merriman, Ian Chua and Jan Harvey
in London and Peter Starck in Frankfurt. Editing by Richard
Satran)
(Reporting by Herbert Lash)
