(Recasts with latest moves, updates prices)
By Natsuko Waki
LONDON, Feb 15 (Reuters) - World stocks fell while the
dollar hit a 1-1/2 week low on Friday as concerns over the
health of the U.S. economy intensified after a weak
manufacturing survey and a U.S. retailer's profit warning.
Wall Street was set for a weaker open later and two-year
U.S. Treasury yields hit their lowest since May 2004 following
the Federal Reserve chairman Ben Bernanke's downbeat U.S.
economic outlook on Thursday. Platinum hit historic highs on
lingering supply concerns in South Africa.
U.S. retailer Best Buy <BBY.N> cut its fiscal 2008 profit
outlook, due partly to lower-than-expected sales growth in
January, pushing major stock indices to the day's lows.
The New York Federal Reserve's manufacturing activity index
fell for the fourth consecutive month in February to its weakest
since April 2003.
All this has fanned concerns that the impact from the
fallout in U.S. subprime mortgages might be spreading beyond the
banking sector.
"We're worried about systemic risks, and mixed in with that
we're worried about the fundamental deterioration of credit
quality beyond subprime," said Bernard McAlinden, investment
strategist at NCB Stockbrokers.
"This feeds on itself in the form of a credit crunch and
there's more weakness where there would not otherwise have
been."
The FTSEurofirst 300 index <> fell 2.2 percent on the
day while MSCI main world equity index <.MIWD00000PUS> was down
0.5 percent on the day.
UBS shares <UBSN.VX> fell 5.3 percent to a 4-1/2 year low
after Citi's equity research team said the Swiss bank 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.
U.S. stock futures were down around 1 percent <SPc1>.
The Markit iTraxx Crossover index <ITCRS5EA=GFI>, the most
widely watched indicator for European credit market sentiment,
widened to 565 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.
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.
DOWNBEAT FED
The dollar fell to a 1-1/2 week low of 75.927 against a
basket of major currencies <.DXY>. The two-year note's yield
<US2YT=RR> fell to 1.8458 percent while the March Bund future
<FGBLH8> was up 28 ticks.
Fed chairman Ben Bernanke said on Thursday the outlook for
the economy had worsened in recent months and pledged that the
central bank would act in a timely manner to support growth.
This reinforced 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."
Emerging stocks <.MSCIEF> was down 0.1 percent while
emerging sovereign spreads <11EMJ> widened 4 bps.
Platinum <XPT=> rose as high as $2,055 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 0.4 percent at $95.89 a barrel.
(Additional reporting by Raissa Kasolowsky)
