(Updates with closing prices, fresh comments)
By Daniel Bases
NEW YORK, Jan 7 (Reuters) - Global stock markets began the
first full trading week of 2008 on an uncertain note on Monday,
with investor concern about a possible U.S. recession prompting
a fall in oil and gold prices.
U.S. stocks ended a volatile session mostly higher,
following a more than 4.0 percent fall last week, while
European stocks ended steady also, as most trading desks
returned to full staffing after the New Year holidays.
Adding to the nervousness was a brief incident involving
Iranian and U.S. naval ships in the Strait of Hormuz in the
Gulf, through which about 40 percent of the world's oil is
transported.
After an initial rise, crude oil prices fell $2.70 a barrel
to $95.21 <CLc1> though, on unseasonably warm U.S. weather and
rising recession fears, while gold fell $4.10 an ounce to $857
<XAU=>.
Last week oil prices hit a record high above $100 a barrel,
while gold also saw a record high around $869 an ounce.
Weak U.S. December job growth and a rise in unemployment
reported on Friday accentuated concerns the U.S. economy may be
headed for recession.
Addressing these worries on Monday, U.S. Treasury Secretary
Henry Paulson said the Bush Administration was considering ways
to give the economy a boost as it weathers a housing market
decline.
"With data Friday showing unemployment ticking up, that's
probably going to keep investors a little spooked," said Owen
Fitzpatrick, head of U.S. Equity Group at Deutsche Bank Private
Wealth Management in New York.
The Dow Jones industrial average <> ended up 29.58
points, or 0.23 percent, at 12,829.76. The Standard & Poor's
500 Index <.SPX> gained 4.73 points, or 0.34 percent, to
1,416.36, but the Nasdaq Composite Index <> fell 5.19
points, or 0.21 percent, to 2,499.46.
In European trading, the FTSEurofirst 300 index <>,
rose 0.01 percent to 1457.79. London's FTSE 100 <> index
ened down 0.2 percent, while Tokyo's Nikkei 225 index fell 1.30
percent to a 17-month low <>
In emerging markets, stocks fell 1.44 percent according to
Morgan Stanley's index <.MSCIEF>.
U.S. BOND YIELDS FALL FURTHER
U.S. Treasury debt prices rose further on Monday as stock
prices fell, with bond yields extending their fall after
Friday's unexpectedly weak U.S. jobs data.
The benchmark 10-year U.S. Treasury note was up 9/32, with
the yield down to 3.8387 percent <US10YT=RR>.
"Everyone is watching equities with one eye," said Richard
Schlanger, portfolio manager at Pioneer Investments USA in
Boston. "The market is pricing in for a significant economic
slowdown."
In European debt markets, yields on the two-year Schatz,
often viewed as the most sensitive indicator of investor
sentiment, edged up to 3.777 percent from 3.749 percent late
Friday, their first rise for a week.
Fixed income investors expect the European Central Bank to
leave euro zone interest rates at 4.0 percent at its policy
meeting on Thursday.
ECB President Jean-Claude Trichet told officials from the
Group of Ten leading economies, in the Swiss city of Basel,
that he expected global economic growth to remain robust,
although there were clear downside risks from the credit market
squeeze last year, as well as from high commodity prices.
In emerging markets, the JP Morgan Emerging Markets Bond
Index Plus <11EMJ><.JPMEMBIPLUS> improved, with yield spreads
tightening two basis points to 254 basis points over benchmark
U.S. Treasuries.
U.S. DOLLAR FIRM
Meanwhile, the U.S. dollar edged higher, despite falling
U.S. bond yields, as inflation concerns were seen likely to
restrict the Federal Reserve's ability to cut interest rates
further.
"Inflation is becoming a more important issue. It might
limit how many times they (the Fed) might continue cutting
rates," said Matthew Strauss, senior currency strategist at RBC
Capital Markets in Toronto.
The U.S. consumer price index rose 4.3 percent in the year
ended November 2007, and fresh U.S. inflation data for December
is due next week.
The New York Board of Trade's U.S. dollar index <.DXY>
edged up 0.38 percent to 76.159 on Monday, after slipping back
last week towards the lowest levels seen since the 1970s in
November.
The euro <EUR=> was down 0.32 percent at $1.4696 on Monday,
while against the Japanese yen the dollar <JPY=> was up 0.48
percent at 109.04.
"Traders generally want to see how exactly hawkish the ECB
will be this Thursday and how much pressure it will take for
the Fed to cut rates by a full 50 basis points," said Boris
Schlossberg, senior currency strategist at DailyFX.com in New
York.
(Additional reporting by Ellis Mnyandu, Richard Leong, and
Lucia Mutikani in New York and Jamie McGeever, Toni Vorobyova
and George Matlock, Anshuman Daga and Amanda Cooper in London;
editing by Clive McKeef)
