(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
* U.S., European stocks fall on new spat of dour bank news
* Oil turns higher on threat of Nigeria oil workers strike
* 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 worries about
banks sent U.S. and European stocks sharply lower on Wednesday
while U.S. government bonds extended a two-day rally on a
renewed bid for safety.
Oil rebounded from earlier declines as a strike threat by
workers in OPEC nation Nigeria stoked supply concerns and the
White House said it did not expect Saudi Arabia to announce an
output increase during a meeting on Sunday in the kingdom.
Other farm commodities rallied again as the Midwest farm belt
flooding spread its destruction through crop lands.
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 closed down 27 percent.
At session lows, the Dow Jones industrial average hit its
lowest level since mid-March immediately after the Federal
Reserve's rescue of Bear Stearns.
The Dow Jones industrial average <> closed down 131.24
points, or 1.08 percent, at 12,029.06, after recovering from
just a fraction below 12,000. The Standard & Poor's 500 Index
<.SPX> fell 13.09 points, or 0.97 percent, at 1,337.84. The
Nasdaq Composite Index <> was off 28.02 points, or 1.14
percent, at 2,429.71.
"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 2.9
percent, with almost all 24 components down.
Morgan Stanley's <MS.N> shares fell sharply after it said
trading losses and a slowdown in investment banking hurt its
results. The bank's shares later pared most of their losses.
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 autos, financials and transport sectors are very
sensitive to the perception is that economic growth is waning,"
said Bruce Zaro, chief technical strategist at Delta Global
Advisors in Boston. "We've had little evidence the economy is
at (its) bottom."
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
15/32 to yield 4.1403 percent. The 30-year U.S. Treasury bond
<US30YT=RR> added 24/32 to yield 4.71 percent.
The dollar edged lower as investors reviewed their interest
rate outlooks for the United States and the euro zone after
slack economic data this week and a fresh bid by monetary
authorities to tone down the threat of tighter policy.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 0.13 percent at 73.42. Against the
yen, the dollar <JPY=> fell 0.09 percent at 107.81.
The euro <EUR=> rose 0.15 percent at $1.5532.
U.S. gold futures end higher as investors boosted their
buying of bullion after crude oil turned sharply higher and the
dollar extends losses.
The August gold contract <GCQ8> in New York settled up
$6.60 at $893.50 an ounce, after rising to $898.10 in afternoon
electronic trade.
Asian shares advanced to extend a fragile two-day rise.
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,
Frank Tang and Matthew Robinson in New York and Rebekah Curtis
in London)
(Reporting by Herbert Lash. Editing by Richard Satran)
