* Global stocks slide on U.S. government, Citigroup deal
* U.S. dollar, gold rise on safe-haven bids
* Oil dips 3 pct on U.S. GDP report, after week's big rise
(Adds close of European stock market)
By Herbert Lash
NEW YORK, Feb 27 (Reuters) - Global stocks fell on Friday
after the U.S. government said it will take a large stake in
Citigroup <C.N> in a move that sent skittish investors to the
safety of gold and the U.S. dollar.
Data that showed the U.S. economy shrank more than expected
in the fourth quarter of 2008 pushed oil prices down more than
3 percent and lifted euro zone government debt as investors
focused on the deepening global recession.
The dollar rose broadly and gold extended gains as
investors worried that other U.S. banks might need a similar
show of support as the government extended to beleaguered
Citigroup <C.N>, moves that could dilute holdings of current
shareholders.
U.S. Treasuries erased most early gains and turned mixed
after U.S. stocks pared losses. Investors fear a rebound in
stocks will take money away from looming debt sales.
The Citigroup move, one of the most dramatic efforts by the
U.S. government to prop up ailing banks, pushed the benchmark
S&P 500 to lows last seen in April 1997, before bargain-hunting
lifted the market off its lows.
The government will swap up to $25 billion of its preferred
shares into common stock of Citigroup, and the bank will stop
paying dividends on its preferred and common stock and promised
to shake up its board of directors.
Citigroup's <C.N> shares fell more than 37 percent to $1.55
and Bank of America <BAC.N> stock fell 18 percent to $4.35.
"It's not good for shareholders, the news this morning, and
that is driving bond prices higher," said Thomas di Galoma,
head of U.S. Treasury trading at Jefferies & Co. in New York.
Before 1 p.m., the Dow Jones industrial average <> was
down 46.03 points, or 0.64 percent, at 7,135.89. The Standard &
Poor's 500 Index <.SPX> was down 8.79 points, or 1.17 percent,
at 744.04. The Nasdaq Composite Index <> was down 5.46
points, or 0.39 percent, at 1,386.01.
European shares fell on the Citigroup news and as a big
loss at Lloyds Banking Group <LLOY.L> hit British banks.
The FTSEurofirst 300 <> index of top European shares
fell 1.78 percent to close at 719.40 points.
"Citigroup was the main thing today," said Howard Wheeldon,
strategist at BGC Partners in London, "even though everybody
knew it's been coming for a while."
The deal is "a creeping step towards full nationalization,"
he said.
Lloyds <LLOY.L> fell 22.3 percent after it unveiled a big
loss for 2008 and said it had not yet finalized details of its
plan to put billions of pounds of assets into a UK
government-backed insurance scheme.
U.S. gross domestic product shrank at a revised annual rate
of 6.2 percent in the fourth quarter, much steeper than the
government's initial estimate of 3.8 percent. It was the
sharpest contraction since early 1982 [].
The data helped push up bund prices.
Bund futures <FGLBc1> jumped as high as 125.57 after the
U.S. GDP data landed, but trimmed gains to end the regular
trading session at 124.70 as U.S. stocks pared some losses.
"The U.S. data underlined the weak economic and market
landscape. Stocks are weak, and in these factors are bringing
about demand for government bonds," said Everett Brown,
European bond strategist at IDEAglobal in London.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 9/32 in price to yield 3.03 percent.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.23 percent at 88.04.
The euro <EUR=> fell 0.35 percent at $1.2686, and against
the yen, the dollar <JPY=> fell 0.65 percent at 97.75.
U.S. light sweet crude oil <CLc1> fell $1.21 to $44.01 a
barrel.
Spot gold prices <XAU=> fell $6.80 to $937.70.
(Reporting by Ellen Freilich, Nick Olivari in New York and
Naomi Tajitsu, Brian Gorman, Chris Baldwin and Jan Harvey in
London; writing by Herbert Lash; Editing by Leslie Adler)
