(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
* U.S., European stocks fall on new spat of dour bank news
* Oil slips below $133 a barrel on U.S. heating oil build
* Dollar posts limited gains as rate hike outlook recedes
* U.S. debt prices rise on view Fed to delay rate increase
By Herbert Lash
NEW YORK, June 18 (Reuters) - A bearish outlook from U.S.
parcel delivery service FedEx Corp. and revived bank sector
worries sent U.S. and European shares lower on Wednesday while
U.S. government bonds extended a two-day rally on a renewed bid
for safety.
The dollar was steady as investors reviewed their interest
rate outlooks for the United States and the euro zone after
conflicting economic data and a fresh bid by monetary
authorities to tone down the threat of tighter policy.
Oil prices fell below $133 a barrel after a surprise build
in U.S. diesel and heating oil stocks last week, bringing crude
losses in the past four days to more than $4.
Financial stocks in the United States and Europe took a
fresh battering after U.S. banks Morgan Stanley <MS.N> and
Fifth Third <FITB.O> disclosed credit-related struggles.
An announcement by regional banker Fifth Third that it
needs $2 billion to cope with credit losses heightened concerns
aroused on Tuesday when an analysts at Goldman Sachs & Co said
U.S. banks may need to raise $65 billion in fresh capital.
Fifth Third <FITB.O> stock fell 16 percent by midday.
"What's coming to light is the process the regional banks
now have to go through in terms of raising capital," said Owen
Fitzpatrick, head of the U.S. Equity Group at Deutsche Bank
Private Wealth Management in New York.
"You're not going to see the same level of interest from
private equity, hedge funds and the sovereign wealth funds like
you saw for the money-center banks," he said.
The KBW index of large U.S. financial shares slipped 2.6
percent, with all 24 components down except for asset manager
Northern Trust <NTRS.O>.
Morgan Stanley's <MS.N> shares fell almost 4 percent after
it said trading losses and a slowdown in investment banking
hurt its results.
Adding to the gloom was FedEx, a closely watched barometer
of U.S. business activity because it ships goods for a vast
number of businesses. The company posted a quarterly loss and
forecast a dismal fiscal 2009 due to high fuel prices and a
weak U.S. economy.
"The two things people are worried about are the financial
system and the economy, and you've got bad news on both of
those today," said Jim Awad, chairman of W.P. Stewart Asset
Management in New York.
"You've got hangover from the financial stocks with Morgan
Stanley, combined with FedEx's negative comments on the
economy." Awad said.
Before 1 p.m., the Dow Jones industrial average <> was
down 102.10 points, or 0.84 percent, at 12,058.20. The Standard
& Poor's 500 Index <.SPX> was down 10.97 points, or 0.81
percent, at 1,339.96. The Nasdaq Composite Index <> was
down 23.49 points, or 0.96 percent, at 2,434.24.
Banks also led the decline in Europe, with Royal Bank of
Scotland <RBS.L> off 5 percent, UBS <UBSN.VX> down 4 percent
and Santander <SAN.MC> dropping 2.3 percent.
In the energy sector, BP <BP.L> fell 2.1 percent as oil
prices fell, making it the largest individual drag on the
broader market.
The pan-European FTSEurofirst index <> ended down 1.4
percent at 1,251.00. Earlier the index hit a session low of
1,246.62, its lowest level since the end of March.
"The market clearly is very strongly in the clutches of the
bear, there's no question about it," said Mike Lenhoff, chief
strategist at Brewin Dolphin.
"At the moment it looks pretty bleak," he said.
U.S. Treasuries debt prices rose as widening stock market
losses enhanced the bid for safe-haven government debt and made
a Federal Reserve rate hike this summer look less likely.
"The perception is that the Fed can't raise rates the way
the market was thinking they were going to do, mainly because
of problems with some very notable regional banks which are
trading at their 52-week lows," said Thomas di Galoma, head of
U.S. Treasuries at Jefferies & Co in New York.
"The Fed doesn't want to cause any further problems by
raising rates," he said.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
11/32 to yield 4.16 percent. The 30-year U.S. Treasury bond
<US30YT=RR> was up 17/32, with the yield at 4.73 percent. The
dollar was little changed against major currencies.
Asian shares advanced on Wednesday to extend a fragile
two-day rise, as oil dipped for the fourth straight session,
signalling lower costs for firms following a plan by top
exporter Saudi Arabia to raise crude output.
Japan's Nikkei share average <> ended 0.7 percent
higher, led by electronic equipment firms.
The MSCI index of stocks in the Asia-Pacific region outside
of Japan <.MSCIAPJ> advanced 0.4 percent but is still down
about 14 percent so far this year.
(Reporting by Jennifer Coogan, Lucia Mutikani, Ellen Freilich
in New York and Margaret Orgill and Rebekah Curtis in London)
(Reporting by Herbert Lash. Editing by Richard Satran)
