(Recasts with Wall Street, updates prices)
By Julie Haviv
NEW YORK, Jan 11 (Reuters) - World stock markets traded
lower on Friday, led by a sell-off in U.S. financial stocks as
signs of a possible slowdown in consumer spending reignited
fears of a recession and a report of possible deep losses at
brokerage Merrill Lynch unnerved markets.
U.S. government bonds, however, rose on the renewed
concerns about bank's exposure to bad mortgages and increasing
expectations of a steep interest rate cut by the U.S. Federal
Reserve later this month.
Spot gold prices surged to a record high just shy of $900
on the rate cut expectations, while oil prices slipped on
concerns of a U.S. economic slowdown.
Mounting credit card defaults at companies such as American
Express Co <AXP.N> raised fears of slowing consumer spending
in the United States and dragged down shares of
consumer-oriented companies, such as Procter & Gamble <PG.N>.
A New York Times report that Merrill Lynch <MER.N>, the
world's biggest brokerage, is expected to suffer $15 billion in
losses stemming from soured mortgage investments dragged on
financial shares. For details, see [].
"Everything you see indicates that the financial problems
are getting worse rather than better," said Michael Metz, chief
investment strategist at Oppenheimer & Co in New York.
The Dow Jones industrial average <> was down 150.30
points, or 1.17 percent, at 12,703.85. The Standard & Poor's
500 Index <.SPX> was down 9.20 points, or 0.65 percent, at
1,411.13. The Nasdaq Composite Index <> was down 27.61
points, or 1.11 percent, at 2,460.90.
The yen climbed across the board on Friday as renewed
concerns about U.S. financial institutions' losses from credit
market turmoil and declining equities eroded risk appetite.
In late morning New York trading, the dollar was down 0.4
percent against the yen to 108.91 yen <JPY=>. The euro also
dropped versus the yen to 161.15 <EURJPY=>, down about half a
percent.
European stocks fell to their lowest level in over a year
as concern the U.S. subprime crisis may be far from over
dampened the mood among investors.
The FTSEurofirst 300 index <>, already under pressure
in the previous session as both the European Central Bank and
the Bank of England kept rates on hold, was down nearly 0.5
percent.
Earlier, Japan's benchmark Nikkei <> fell to its
lowest close since November 2005.
TREASURIES TREK HIGHER
The bane of the U.S. stock market, however, was a boon for
long-dated U.S. Treasuries.
U.S. government bond prices rallied on Friday on renewed
concerns about banks' exposure to bad mortgage investments and
falling stocks.
The benchmark 10-year note traded up 11/32 in price for a
yield of 3.846 percent <US10YT=RR>, compared with 3.89 percent
late on Thursday. Bond yields and prices move inversely.
BERNANKE OVERSHADOWED
The credit worries overshadowed comments from the Federal
Reserve Chairman Ben Bernanke on Thursday acknowledging the
U.S. economy faced increased risks and indicating the Fed was
ready to cut interest rates aggressively to support growth.
Bernanke, however, did fuel hopes for more aggressive U.S.
rate cuts, helping to drive gold to a fresh record high near
$900 an ounce.
The possibility of more financial trouble, ahead of key
results in the U.S. banking sector next week, also kept assets
traditionally seen as safe-haven underpinned.
As well as Merrill, big names such as Citigroup <C.N>,
State Street <STT.N>, US Bancorp <USB.N> and JP Morgan <JPM.N>
report results next week.
Investors will be looking closely at the results to see how
the recently downbeat sector is faring, especially as recent
data, such as last week's key U.S. jobs data, has fueled fears
the United States, the world's largest economy, may be on the
brink of recession.
Such concerns have even knocked oil prices off last week's
record highs of just above $100 a barrel. U.S. crude last
traded at $93.16 a barrel.
Some analysts say the only solution is further rate cuts
but even Bernanke's comments weren't enough to comfort nervous
investors.
"While Bernanke appeared to be in generous mood in terms of
prospects for cutting rates, market psyche is such at present
that the general take is that his turnaround must suggest that
he knows something that we all don't, i.e. that the U.S.
economy is in much worse shape than we have all been hitherto
assuming," said Bear Stearns in a client note.
(Additional Reporting by Ana Nicolaci da Costa, Ellis Mnyandu,
Gertrude Chavez-Dreyfuss and John Parry; Editing by Leslie
Adler)
