(Updates prices, Wall Street outlook)
By Natsuko Waki
LONDON, Feb 15 (Reuters) - Stocks fell while the dollar hit
a 1-1/2 week low on Friday as concerns grew about further
writedowns of subprime mortgage losses by banks following a
ratings downgrade of a U.S. bond insurer.
Wall Street was set for a flat open later, a day after the
Federal Reserve chief cast a downbeat U.S. economic outlook.
Platinum hit historic highs on lingering supply concerns in
South Africa, supporting emerging market assets.
Citi's equity research team said Swiss bank UBS may need to
announce new writedowns of up to $18 billion. The total size of
the banking sector writedowns of subprime mortgage-related
losses is estimated at around $300-400 billion, around a third
of which has so far come to light.
On Thursday, Moody's Investor Service cut its triple-A
ratings on FGIC's bond insurance arm because of a $4 billion
hole in the insurer's capital position. It raised fears that
this would trigger a broader sell-off in bonds insured by FGIC
and generating more writedowns for banks.
New York state officials said on Thursday that the
recapitalisation of U.S. bond insurers may occur soon, but if it
fails, insurers could be forced to separate riskier activities
from their municipal bond business.
"We know the banks have potentially more writedowns to make
and a lot will depend on whether (New York Governor Eliot)
Spitzer could push the bond insurers' recapitalisation," said
Edmund Shing, strategist at BNP Paribas in Paris.
"It's going to be crunch time, but it's in the interest of
the banks to get the recap done."
The FTSEurofirst 300 index <> erased early gains to
fall 0.7 percent on the day while MSCI main world equity index
<.MIWD00000PUS> was down slightly on the day.
UBS shares fell 5.3 percent to a 4-1/2 year low.
U.S. stock futures were largely steady <SPc1>.
DOWNBEAT FED
The dollar fell to a 1-1/2 week low of 75.927 against a
basket of major currencies <.DXY> after Fed chairman Ben
Bernanke said on Thursday the outlook for the economy had
worsened in recent months.
Bernanke also pledged that the Fed would act in a timely
manner to support growth, reinforcing market expectations the
Fed would cut interest rates again in March, on top of a total
225 basis points of reductions since September.
"(Bernanke's) comments are likely to confirm the medium-term
view that with its rate cuts the Fed is doing the right thing in
order to stem downside risks for the U.S. economy," Commerzbank
said in a note to clients.
"However, by highlighting the downside risks to growth,
Bernanke confirmed prevailing aggressive rate cut speculation,
which currently keeps the dollar under broad pressure."
The Markit iTraxx Crossover index <ITCRS5EA=GFI>, the most
widely watched indicator for European credit market sentiment,
widened 16 basis points to 557 bps -- below record wides of 575
bps set earlier this week.
The widening reflects deteriorating sentiment in European
credit markets. In August, the blowout in the iTraxx index --
made up of 50 mostly "junk"-related credits -- caused a sell-off
in risky assets and stress in money markets.
Emerging stocks <.MSCIEF> rose a quarter percent while
emerging sovereign spreads <11EMJ> widened 1 bps.
The March Bund future <FGBLH8> was steady on the day.
Platinum <XPT=> rose as high as $2,028 an ounce as an energy
crisis in South Africa forced another miner to forecast lower
output in 2008.
Gold <XAU=> rose to $909.60 an ounce.
U.S. light crude <CLc1> rose 0.1 percent at $95.60 a barrel.
(Additional reporting by Blaise Robinson; editing by Tony
Austin)
