* U.S. stocks slide 2 pct as economic data generates gloom
* Oil rebounds from seven-week low in technical trading
* Dollar drops against yen; euro at two-week low vs dollar
* U.S., euro zone government debt rallies on economic data
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, July 24 (Reuters) - U.S. stocks fell sharply on
Thursday, pulled down by a plunge in banking shares, as
disappointing economic news snapped optimism that had been
growing from last week and renewed a safe-haven bid for bonds.
A drop in sales of existing U.S. homes to a 10-year low was
the straw that broke investor hopes that an end to the yearlong
credit crisis was taking shape. Government efforts to rescue
the two biggest U.S. mortgage finance companies this week
spurred that view.
Oil prices recovered on technical trading after falling to
a seven-week low amid recent signs of slackening demand.
The mood turned gloomy early after a raft of economic
reports supplied ample evidence of deteriorating economies.
U.S. and euro zone government debt rallied on the news.
The reports pointed to more U.S. labor market weakness and
no let up in the housing slump, while Ford and Dow Chemical
were both pressured by quarterly results that disappointed.
The broad market Standard & Poor's 500 Index and the Dow
both fell more than 2 percent. Bank of America, Citigroup and
JPMorgan Chase were the biggest drag on the S&P 500, and they
were among the top drags on the Dow.
In Europe, German business sentiment suffered its biggest
drop since the Sept. 11, 2001 attacks on New York and
Washington, British retail sales took a record fall and surveys
of German, French and Italian businesses all came in below
market expectations.
Bleak data also arrived as Daimler <DAIGn.DE> and Renault
<RENA.PA> cut their annual forecasts, hammering automakers and
helping push European shares lower. The euro hit a two-week low
against the dollar as the increasingly gloomy outlook cooled
any expectations the European Central Bank would raise interest
rates.
U.S. Financial companies, which have incurred huge losses
from the housing slump, slid after data from the National
Association of Realtors.
Shares of mortgage finance companies Fannie Mae <FNM.N> and
Freddie Mac <FRE.N> fell more than 17 percent, just a day after
the House approved a housing rescue package that would include
a U.S. government lifeline for the two companies.
S&P financial stocks <.GSPF> fell 6.7 percent, its biggest
single-day decline since April 2000.
Steve Goldman, market strategist at Weeden & Co based in
Greenwich, Connecticut, said investors remain skittish despite
passage of the bill and the government's rescue efforts.
"Fannie and Freddie are probably in need of a capital
infusion and that fear is not going away. The housing data
provided a catalyst today," Goldman said.
Post-earnings brokerage downgrades of Boeing Co <BA.N>,
down 6.5 percent, McDonald's Corp <MCD.N>, off 1.3 percent and
AT&T <T.N>, off 3.5 percent, added to the economic headwinds.
Ford <F.N> slid more than 10 percent and Dow Chemical
<DOW.N> fell 1.8 percent.
"It all gives one every reason to test what's been a
violent and surprising rally over the last few days," said Jim
Awad, chairman of W.P. Stewart Asset Management in New York.
"The big question is whether or not it was a fantasy
rally," he added. "Smart people will tell you there's enough
work to be done in the financial sector and enough after
effects from $4 gasoline to suggest we will go down again."
The Dow Jones industrial average <> fell 283.10 points,
or 2.43 percent, at 11,349.28. The Standard & Poor's 500 Index
<.SPX> fell 29.62 points, or 2.31 percent, at 1,252.57. The
Nasdaq Composite Index <> fell 45.77 points, or 1.97
percent, at 2,280.11.
"Weakness in the U.S. economy is rapidly spreading around
the globe," said William O'Donnell, head of U.S. interest rate
strategy at UBS Securities in Stamford, Connecticut.
European stocks gave up most of the previous day's gains as
the lowered forecasts from Daimler and Renault hit autos and
weakening commodity prices dragged oils and miners lower.
Daimler <DAIGn.DE> sank 10 percent, Fiat <FIA.MI> lost 4.9
percent and Peugeot <PEUP.PA> fell 7.2 percent.
The FTSEurofirst 300 <> index of top European shares
closed down 1.6 percent lower at 1,170.80 points. The index
rose 2.1 percent on Wednesday.
U.S. Treasury debt extended gains while rate futures
trimmed chances of a September interest rate hike from the
Federal Reserve after the U.S. existing home sales in June.
Euro zone government bonds rallied, snapping a six-day
losing streak triggered by falling oil and rising stock prices,
on the disappointing economic reports.
The benchmark 10-year U.S. Treasury note <US10YT=RR> gained
26/32 to yield 4.02 percent. The 30-year U.S. Treasury bond
<US30YT=RR> rose 28/32 to yield 4.62 percent.
The dollar rose slightly against major currencies, with the
U.S. Dollar Index <.DXY> up 0.02 percent at 72.808. Against the
yen, the dollar <JPY=> fell 0.69 percent at 107.21.
The euro <EUR=> fell 0.03 percent at $1.5683.
data
Japan's Nikkei share average <> rose 2.2 percent to
its highest close in almost a month.
Shares in the Asia-Pacific region excluding Japan
<.MIAPJ0000PUS> edged up 0.8 percent to the highest level in
more than three weeks. The MSCI index has bounced 8 percent
from a 16-month low plumbed last week.
Oil prices rebounded in technical trading after recent
declines left the market oversold.
U.S. light crude <CLc1> settled at $125.49 a barrel, up
$1.05. London Brent crude <LCOc1> settled at $126.44, up $1.15,
after falling to a seven-week low of $124.10 earlier.
U.S. gold futures seesawed but ended a tad lower as a
strong dollar and losses in holdings of gold exchange-traded
funds offset bargain hunting and oil's gains.
Gold contracts for August <GCQ8> settled down 50 cents at
$922.30 an ounce in New York.
(Reporting by Steven C. Johnson, Ellis Mnyandu, Chris Reese in
New York; Jamie McGeever, Kirsten Donovan, Ikuko Kao and Peter
Graff in London and Blaise Robinson in Paris)
(Reporting by Herbert Lash. Editing by Richard Satran)
