* Wall St slides on bank jitters, earnings outlook caution
* US dollar rallies broadly as equities worldwide tumble
* Government debt shines on banking worries flare up
* Oil drops over 8 pct on economic outlook, dollar rise
(Recasts; updates U.S. markets; changes dateline, previous
LONDON)
By Herbert Lash
NEW YORK, April 20 (Reuters) - Oil prices and stocks around
the world tumbled on Monday after a jump in troubled loans at
Bank of America and renewed signs of economic weakness cooled
investors' optimism the worst of a global slowdown was over.
The U.S dollar rallied broadly to trade at one-month highs
as the slide in worldwide equity markets boosted safe-haven
demand for the greenback, U.S. and European government debt and
gold.
Bank of America <BAC.N> stock shed 17 percent after
reporting its purchase of Merrill Lynch & Co helped to more
than double first-quarter profit, but credit quality
deteriorated sharply, hurt by a flagging economy and growing
unemployment. (For details see []).
Also weighing on sentiment was a key gauge of future
economic activity, which fell for the third month in a row in
March, showing the U.S. recession may persist through summer.
[]
In another sign of weakness, Germany fell deeper into
recession in the first quarter, the Bundesbank said, fueling
expectations of a record contraction in gross domestic product.
[]
Most major European and U.S. stock indexes fell more than
3.0 percent as analysts questioned the prospect for corporate
earnings.
Shares of Citigroup Inc <C.N> fell 16 percent after Goldman
Sachs said credit losses at the bank continued to grow at a
rapid rate, putting a damper on earnings expectations.
"People are starting to peel the results back and say wait
a second," said Joe Saluzzi, co-manager of trading at Themis
Trading in Chatham, New Jersey. "Can (the results) continue in
the next quarter?"
At 1 p.m., the Dow Jones industrial average <> was off
219.04 points, or 2.69 percent, at 7,912.29. The Standard &
Poor's 500 Index <.SPX> was down 28.93 points, or 3.33 percent,
at 840.67. The Nasdaq Composite Index <> was down 54.10
points, or 3.23 percent, at 1,618.97.
Banking shares took the most points off an index of leading
European companies, sparked by Bank of America results.
The FTSEurofirst 300 <> index of top European shares
closed 3.5 percent lower at 786.12 points, the biggest daily
percentage drop since March 30.
Deutsche Bank <DBKGn.DE> lost 8.6 percent, Barclays
<BARC.L> fell 7.9 percent and BNP Paribas <BNPP.PA> 6.6
percent.
The DJ STOXX Banks Index <.SX7P> fell 5.5 percent.
Oil slid more than 8.0 percent to about $46 a barrel,
depressed by a rising dollar and growing caution about the pace
of any economic recovery and its impact on oil demand.
U.S. crude for May delivery <CLc1> was down $3.95 at $46.38
a barrel. Brent crude <LCOc1> for June fell $3.09 to $50.26.
President Barack Obama said on Sunday the U.S. economy
remained under strain and his top economic adviser tempered
hopes for a speedy recovery that have driven Wall Street to six
straight weeks of gains.
Managing Director Dominique Strauss-Kahn of the
International Monetary Fund was quoted Sunday as saying the IMF
would cut its global economic forecasts this week and that he
did not expect a recovery to start unitl the first half of next
year.
"Near term, we don't see any supportive factors for the oil
market," said Harry Tchilinguirian, oil analyst at BNP Paribas
in London. "We have not yet turned the corner on the economy,
oil demand is very weak and inventories are high."
The U.S. dollar rallied, boosted by volatility in global
equity markets and expectations the U.S. economy will rebound
from recession sooner than other regions.
"There's no doubt among investors that the U.S. will be the
first to get out of this recession," said Matt Esteve, a
currency trader at Tempus Consulting in Washington. "As stocks
around the globe move lower, we are seeing a re-emergence of
risk aversion and the dollar gets a boost."
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.82 percent at 86.604. Against
the yen, the dollar <JPY=> fell 1.20 percent at 97.94.
The euro <EUR=> fell 0.83 percent at $1.293.
Gold rose about 2.0 percent, with spot gold prices <XAU=>
rose $17.25 to $885.15 an ounce.
U.S. and euro zone government bonds rallied as a steep fall
in equities helped underpin appetite for less risky
fixed-income assets.
Fears about the financial sector were also stoked by a blog
which said it had obtained the results of "stress tests" on the
health of the top 19 U.S. banks. A spokesman said the U.S.
Treasury Department has not received results. []
"It's a pure risk aversion type day today ... it's all
about the bond market reacting to very weak equities," said
John Davies, fixed-income strategist at West LB.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
26/32 in price to yield 2.86 percent. The 2-year U.S. Treasury
note <US2YT=RR> rose 3/32 to yield 0.93 percent.
Asian stocks edged higher. The MSCI index of Asia-Pacific
shares outside Japan <.MIAPJ0000PUS> was up 0.7 percent and
Japan's Nikkei average <> drifted up 0.2 percent.
(Reporting by Leah Schnurr, Chris Reese and Vivianne Rodrigues
in New York; Ian Chua, Christopher Johnson, Alex Lawler, Jan
Harvey and Veronica Brown in London and Christoph Steitz in
Frankfurt; writing by Herbert Lash)
