(Recasts, updates prices, adds comment)
By Daniel Bases
NEW YORK, Jan 16 (Reuters) - Rising fears of slowing
economic growth in the United States and Europe led to weak
stock markets across the globe on Wednesday and punctured the
rally in ballooning commodity prices also.
Bargain hunters bought the beaten-up financial sector
stocks, which briefly helped lift benchmark U.S. indices into
the plus column.
U.S. recession fears were stoked after the No. 3 U.S. bank,
JP Morgan <JPM.N> said its quarterly profit fell more than
expected due to risky mortgages while No. 1 computer chip maker
Intel Corp <INTC.O> missed Wall Street estimates.
The poor results highlighted the strains in the consumer
sector which drives the U.S. economy.
But investors scooped up JP Morgan's shares, as well as
those of Wells Fargo & Co <WFC.N>, the No. 2 U.S. mortgage
lender, on a smaller-than-expected decline in profits.
"Financials are really starting to take off from here. A
lot of people say the group has been washed out," said Anthony
Conroy, head trader for BNY ConvergEx, an affiliate of the Bank
of New York.
With recession fears rising, expectations for the U.S.
Federal Reserve to cut interest rates by the end of the month
are intensifying.
At the same time, the euro dropped sharply against the U.S.
dollar after comments from a European Central Bank official
called into question 2008 euro zone growth forecasts.
Euro zone benchmark bonds yields fell sharply as a result
but U.S. Treasury yields edged up after U.S. consumer price
data showed a modest 0.3 percent rise in December but the
highest level of inflation for the year in 17 years.
The benchmark 10-year Bund <EU10YT=RR> was yielding 3.974
percent, its lowest since last March, while the U.S. benchmark
10-year notes <US10YT=RR> were trading around a yield of 3.73
percent, after falling as low as 3.62 percent, the lowest since
July 2003.
Markets are now awaiting Federal Reserve Chairman Ben
Bernanke's testimony on Thursday on the outlook for the U.S.
economy before the House Budget Committee.
Economists polled by Reuters on Wednesday unanimously said
they expected the Fed to lower the benchmark fed funds target
rate by half a percentage point to 3.75 percent.
The data "underlines our view that we're on a razor's edge
here, that we could be headed into recession," said Mike
Schenk, senior economist with Credit Union National Association
in Madison, Wisconsin.
Anecdotal evidence from the Fed's Beige Book report showed
the U.S. economy continued to grow in the forth quarter but the
pace of activity slackened amid subdued holidy spending and a
weak housing sector.
The Dow Jones industrial average <> was down 34.63
points, or 0.28 percent, at 12,466.48. The Standard & Poor's
500 Index <.SPX> was down 7.85 points, or 0.57 percent, at
1,373.10.
MSCI's key world equity index <.MIWD00000PUS> shed 2
percent to levels last seen in mid-August, while the
FTSEurofirst 300 <> index of top European shares fell
0.88 percent to trade near its lowest since September 2006.
The MSCI emerging market stock index <.MSCIEF> fell 4.04
percent, hit hard by the tightening grip of U.S. recession
concerns as America serves as a main destination for their high
priced commodity and value added exports.
EURO FALLS
The euro fell sharply against the U.S. dollar after
European Central Bank Governing Council member Yves Mersch was
reported to have said the ECB may revise down 2008 euro zone
growth forecasts and should remain flexible on interest rate
policy.
He also reportedly said risks to euro zone inflation were
also increasing.
ECB President Jean-Claude Trichet told reporters later on
Wednesday that there had been no change to the view of the
bank's Governing Council that 2008 growth would be broadly in
line with the bloc's potential.
The euro <EUR=> was down 1.01 percent at $1.4657 from a
previous session close of $1.4807.
"The concerns about the U.S. are big enough so that (the
ECB) is concerned about a future spill over, although it's not
real evident in the data yet," said Greg Anderson, senior
foreign exchange strategist with ABN AMRO in Chicago.
COMMODITIES WEAK
Prices for crude oil, metals and grains all declined on
profit taking on Wednesday. Demand could also slacken if the
U.S. slips into recession later this year.
Crude oil prices fell more than $2 to below $90 a barrel,
off, its lowest level in nearly a month due to a large rise in
U.S. inventories and concerns demand may slacken. Oil was above
$100 a barrel earlier this month.
"The latest EIA data confirm the weakening trend in demand
and will keep the market bearish in combination with
recessionary fears that have hit all financial markets," said
Tom Night, trader with Truman Arnold.
Investors sold gold, pulling it down from Monday's record
high of $914 an ounce. In midday New York trade, spot gold
traded at $877.20 an ounce versus $899.50/900.20 quoted late in
New York on Tuesday.
(Additional reporting by Ian Chua in London)
