(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, March 6 (Reuters) - Resurgent credit worries
upended U.S. and European financial markets on Thursday and the
dollar tumbled to new lows as hawkish inflation remarks by the
European central banker prompted concerns the U.S. currency has
further to fall if Europe holds its rates stable.
A steady flow of chilling news and speculation, including
two mortgage-related defaults and talk that Swiss bank UBS
<UBSN.VX> was trying to offload $24 billion of risky mortgages,
put dealers on edge and pushed up safe-haven U.S. government
debt.
European and U.S. stocks were pulled down by default
notices at U.S. home lender Thornburg Mortgage and a
Dutch-listed affiliate of private equity firm Carlyle Group.
Speculation mounted subprime losses at UBS were rapidly
piling up and rumors spread that it had begun selling off risky
mortgages at a deep discount, which weighed on markets.
The Standard & Poor's 500 Index, a broad gauge of U.S.
stock market activity, crashed through a January low to close
at a level last seen in September 2006, adding concern for
technically-minded investors who worry that the market may be
losing support. The Standard & Poor's 500 Index <.SPX> ended
down 29.35 points, or 2.20 percent, at 1,304.35.
For the year, the Dow is down about 9 percent and the S&P
500 about 11 percent.
The dollar fell to lifetime lows against the euro and oil
held firm after hitting a new high near $106. The weak dollar
helped extend gains from the previous day. Gold retreated from
record highs set the previous day as commodity prices generally
dropped on profit taking and economic worries.
Equity and currency investors reacted bearishly to the
report that U.S. home foreclosures rose to record highs in the
fourth quarter. With questionable mortgage debt already hanging
over the market, the report triggered renewed worries about
whether more repayments might be in jeopardy.
"We are dealing with a market that at this point is still
very, very jittery, wondering what's going to come out of the
closet next," said Frederic Dickson, market strategist at D.A.
Davidson & Co in Lake Oswego, Oregon.
"Investors seem to be moving to the safest instruments
around or just diving into their fox holes. This looks pretty
much like an across-the-board sell-off."
Michael Metz, chief investment strategist at Oppenheimer &
Co in New York, said the U.S. economy has never been as
leveraged, and with real estate prices declining, pressure on
American consumers to pay back debts is rising.
"This is the worst I've ever seen because there really are
systemic risks, and unfortunately we come off a period where
the secret to American prosperity was leverage, nothing more,
nothing less," said Metz, who has been active in the financial
markets since the Arab oil embargo of 1973.
"The bottom line is we have to go through a market process
of de-leveraging and it's going to be painful and protracted."
The Dow Jones industrial average <> was down 214.60
points, or 1.75 percent, at 12,040.39.
While mortgage debt rates climbed. U.S. Treasuries prices
jumped and yields fell as investors snapped up the government
securities as safe havens against repayment failures. The
benchmark 10-year U.S. Treasury note <US10YT=RR> climbed 22/32,
lowering its yield to 3.5977 percent
Shares of mortgage lender Thornburg plummeted on worries it
might go bankrupt after the provider of jumbo loans failed to
meet a $28 million margin call from JPMorgan Chase & Co,
triggered defaults under other lending agreements.
Margin calls force borrowers to pay back loans or post more
collateral. Thornburg shares, which traded above $27 before it
was hit by the credit crunch last summer. Shares of Thornburg
<TMA.N> fell 51 percent to $1.65.
Money manager Carlyle Capital Corp <CARC.AS> said it
received margin calls totaling more than $37 million from seven
parties on Wednesday and was unable to meet the demands for
extra collateral to cover market positions for four of them.
The FTSEurofirst 300 index <> closed down 1.4 percent
at 1,282.90 in a volatile session, led lower by banks.
Earlier, Japan's Nikkei average rose 1.9 percent on
Thursday, partly because the yen was stabilizing yen and
Japanese exporters thus gaining.
The benchmark Nikkei average <> ended at 13,215.42,
one day after logging its lowest close since Jan. 23. The
broader TOPIX index <> added 1.9 percent to 1,287.55.
MSCI's main world equity index <.MIWD00000PUS> slipped 0.72
percent at 364.44.
The European Central Bank left interest rates at 4.0
percent for the ninth month running, and while some analysts
said remarks by President Jean-Claude Trichet were a small step
toward an easing monetary policy, others were skeptical.
"We continue to see the ECB hunkered down at the sidelines
for the remainder of this year," said Richard McGuire, a fixed
income strategist at RBC Capital Markets.
The euro <EUR=> was up 0.79 percent at $1.5391 from a
previous session close of $1.5270. Against the Japanese yen,
the dollar <JPY=> was down 1.39 percent at 102.59 from a
previous session close of 104.04.
U.S. light sweet crude oil <CLc1> rose 94 cents, or 0.9
percent, to $105.46 per barrel, and spot gold prices <XAU=>
fell $10.10, or 1.02 percent, to $977.80. The
Reuters/Jefferies CRB Index <.CRB> was down 4.47 points, or
1.06 percent, at 415.28.
(Writing by Herbert Lash. Editing by Richard Satran)
