(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, March 3 (Reuters) - Oil and gold charged to new
highs on Monday, fueled by a crumbling dollar, as more weak
U.S. economic data and inflation worries kept money flowing
into commodities and out of equities.
Shares in Europe and the United States fell as investor
confidence was undermined again by a continuing toll of credit
losses at banks and financial institutions.
Crude oil prices set new records in New York and London,
and gold edged closer to $1,000 an ounce, setting a record high
for the fourth straight day.
Treasury bond prices eased and the dollar pared losses
against the euro and the yen after a slightly
firmer-than-expected U.S. manufacturing report.
U.S. Treasury Secretary Henry Paulson urged financial
institutions to raise fresh capital if they need it and he
warned that although markets are adjusting to the housing and
credit crisis, the healing process might be prolonged.
With uncertainty lingering in financial markets,
commodities have remained attractive. Investors "are buying
commodities to hedge against inflation because hanging on to
the dollar means they lose value," said Phil Flynn of Alaron
Trading in Chicago.
Crude oil speculators on the New York Mercantile Exchange
have increased their net long positions to the highest in seven
weeks, according to data from the Commodity Futures Trading
Commission released last week, showing continued betting that
oil prices will go up.
"There is no top in sight yet for crude futures because
hedge funds are looking at how far the U.S. dollar will fall,"
said Alaron Trading's Flynn.
Economic data gave little new direction to trading, showing
continuing weakness. U.S. factory activity contracted in
February, falling to its weakest in nearly five years and
heightening fears of a U.S. recession, if it has not already
fallen into one.
The Institute for Supply Management said its index of
national factory activity fell to 48.3 in February from 50.7 in
January on slackening employment and new orders. The widely
watched ISM number bucked a trend of indicators coming in much
weaker than expected, some of them hitting multi-year lows, but
it still pointed to weak growth at best.
"The ISM manufacturing index is now in the no-man's land
between weak growth and recession, but the problems elsewhere
in the economy point more to the latter," said Ian Shepherdson,
chief U.S. economist at High Frequency Economics in Valhalla,
New York.
European shares closed down for a fourth day and U.S.
stocks also declined, but not as much.
U.S. financial shares weakened as mortgage lender Thornburg
Mortgage <TMA.N> failed to meet new margin calls, raising
speculation that it might file for bankruptcy.
The Dow Jones industrial average <> was down 7.49
points, or 0.06 percent, at 12,258.90. The Standard & Poor's
500 Index <.SPX> was up 0.71 points, or 0.05 percent, at
1,331.34. The Nasdaq Composite Index <> was down 12.88
points, or 0.57 percent, at 2,258.60.
Banks drove European shares lower, dragged down by British
mortgage lender HBOS <HBOS.L>, with the bank sector index
<.SX7P> off 1.65 percent. HSBC <HBSA.L> shares fell more than 1
percent before rising on last year's 10 percent profit gain.
The FTSEurofirst 300 index <> of major European
companies closed down 1.36 percent at 1,297.43, while MSCI's
main world equity index <.MIWD00000PUS> fell 1.07 percent to
hit a one-week low.
Earlier, Japanese stocks fell more than 4 percent, with the
Nikkei hitting a nearly six-week closing low as exporters, such
as Honda Motor Corp <7267.T>, were battered by a strong yen
amid growing U.S. recession worries.
Hong Kong stocks, which tracked losses in overseas
equities, also fell over U.S. economic weakness.
The benchmark Nikkei <> shed 610.84 points to end at
12,992.18, while the benchmark Hang Seng Index <> in Hong
Kong ended down 3.07 percent at 23,584.97.
In currencies, the dollar was down against a basket of
major trading-partner currencies, with the U.S. Dollar Index
<.DXY> down 0.01 percent at 73.648 from a previous session
close of 73.657. Its recent fall to record lows has helped draw
investment into oil and other commodities.
Crude oil is priced in U.S. dollars so when the U.S.
currency declines oil prices often rise to reflect that.
The market drew support as oil producer Venezuela and
Ecuador sent troops to their borders with Colombia after it
bombed rebels inside Ecuador.
U.S. crude oil for April delivery <CLJ8> settled up 61
cents at $102.45 a barrel, after an earlier record high of
$103.95. London Brent crude <LCOJ8> settled up 38 cents at
$100.48 a barrel, after touching a record of $102.29.
The dollar rebounded from lifetime lows against the euro
and a basket major currencies as investors took profits on
relief the ISM data was not as bad as expected.
The U.S. Treasury market fell on the ISM report and was
also unsettled by remarks from Philadelphia Federal Reserve
Bank President Charles Plosser suggesting that the Fed should
be ready to raise rates when financial conditions stabilize.
The benchmark 10-year note's yield <US10YT=RR>, which moves
inversely with price, rose to 3.57 percent, up 6 basis points
from late Friday.
Gold, which has gained about 18 percent so far this year,
rose closer to the $1,000 mark. Investors are shifting some of
their money into the precious metal amid expectations of more
U.S. interest rate cuts, volatile stock markets and fears of
rising energy costs.
Silver jumped above $20 an ounce for the first time since
November 1980, while platinum and palladium held near highs.
Spot gold <XAU=> jumped as high as $989.30 an ounce and was
at $981.20/982.00 at New York's last quote, up from
$973.30/973.75 late on Friday.
"As long as the dollar remains under pressure, I would
expect that gold prices would continue to rise."
said Michael Widmer, a metals analyst at Lehman Brothers.
(Reporting by Caroline Valetkevitch, John Parry and Lucia
Mutikani in New York and Amanda Cooper, Jane Merriman and
Daniel Magnowski in London)
(Writing by Herbert Lash. Editing by Richard Satran)
