(Updates to U.S. market close)
By Herbert Lash
NEW YORK, Feb 21 (Reuters) - Fresh signs of a flagging U.S.
economy dragged U.S. stocks lower on Thursday and sparked a
rally in safe-haven debt as the dollar slid to two-week lows
and gold and other precious metals hit new highs.
Oil pulled back from all-time highs above $100 a barrel on
Wednesday as U.S. economic concerns and growing inventories
offset expectations the Organization of Petroleum Exporting
Countries could cut output when it meets next month.
The Philadelphia Federal Reserve Bank's business activity
index for the mid-Atlantic region in February slumped to its
lowest level since the last recession, and the Conference
Board's index of leading economic indicators of future economic
activity declined for a fourth straight month.
The data heightened recession fears and bolstered
expectations that the Fed will cut rates further to support the
faltering economy.
"The data this morning together are mutually reinforcing
that the economy is in recession," said Eric Green, an
economist at Countrywide Financial in Calabasas, California.
Interest rate futures markets now have almost fully priced
in another half-percentage-point interest rate cut at the March
meeting, up from an 82 percent chance before the sharp fall in
the Philadelphia Fed's business index. <FEDWATCH>
The Dow Jones industrial average <> was down 142.96
points, or 1.15 percent, at 12,284.30. The Standard & Poor's
500 Index <.SPX> was down 17.51 points, or 1.29 percent, at
1,342.52. The Nasdaq Composite Index <> was down 27.32
points, or 1.17 percent, at 2,299.78.
In a bright spot, shares of Research in Motion Ltd
<RIM.TO><RIMM.O> rose almost 10 percent after the company
lifted its fourth-quarter subscriber outlook to reflect strong
holiday sales of its popular BlackBerry smartphones.
"This is the problem: you may have your bright spots but
you're going to continue to get bouts of very negative economic
data," said Stephen Massocca, co-chief executive at Pacific
Growth Equities in San Francisco.
"These problems aren't going away any time soon," he said.
"The consumer is going to be crimped for a while. All of that
is going to lead to troubling economic indicators, and those
are going impact stocks."
EUROPEAN SHARES RISE WITH NESTLE
In Europe, stocks managed to close higher as bank shares
rose on expectations of further U.S. interest rate cuts. Gains
were pared late in the day as the manufacturing data from the
Philadelphia Fed ignited fears of recession.
Gains were led by banks and underpinned by results from the
likes of Nestle and Reed Elsevier, but shares pared gains on
fresh signs of a flagging U.S. economy.
Nestle <NESN.VX>, the world's largest food company, was the
most heavily-weighted gainer in Europe, rising 3.5 percent
after it posted a 15.8 percent rise in net profits for 2007 as
it withstood record prices for ingredients such as milk and
cocoa.
Shares of publisher Reed Elsevier <REL.L> rose 7.45 percent
after the company announced the acquisition of U.S. risk
management business ChoicePoint Inc. for $4.1 billion,
including some debt.
The FTSEurofirst 300 index <> closed up 0.7 percent
at 1,330.07.
Banks were the index's best gainers on expectations the Fed
would cut rates further and as Societe Generale <SOGN.PA> did
not reveal any new surprises after reporting a record 3.35
billion euro ($4.93 billion) fourth-quarter loss.
BNP Paribas <BNPP.PA>, Royal Bank of Scotland <RBS.L> and
ING <ING.AS> rose between 3 percent and 4 percent.
In Japan stocks rose as metal shares soared on surging gold
and copper prices, with Sumitomo Metal Mining Co Ltd <5713.T>
rising 15.3 percent, its biggest one-day gain in a decade. The
benchmark Nikkei <> closed up 2.8 percent to 13,688.28.
In the U.S. government bond market, the benchmark 10-year
note price -- which moves inversely to its yield -- was up more
than a full point, its yield easing to 3.76 percent <US10YT=RR>
from 3.89 percent late on Wednesday.
Crude oil futures fell for the first time in six sessions,
hurt by a rise in inventories as well as the economic data.
"More and more people are of the view that crude at $100 is
overpriced and simply far detached from market fundamentals,"
said Jim Ritterbusch, president of Ritterbusch & Associates in
Galena, Illinois.
U.S. crude for April delivery <CLc1> ended down $1.47 at
$98.23.
Gold and platinum set historic highs in choppy trade.
Silver hit a 27-year high above $18 an ounce, a spike of 22
percent this year, while palladium jumped more than 9 percent
to a 6-1/2-year high before paring gains.
Spot gold <XAU=> hit a high of $948.60 an ounce and was
quoted at $944.70/945.50 at 1505 GMT, against $934.80/935.60
late in New York on Wednesday.
In currency markets, the euro rose to two-week highs
against dollar at $1.4822, according to Reuters data, but
traded back down to $1.4805 <EUR=>,
More U.S. rate cuts would further erode the dollar's appeal
to global investors, particularly when central banks in Europe
and Australia are keeping rates steady or raising them.
The Philadelphia Fed survey "is a big black eye for dollar
bulls. It's really starting to confirm the notion that the U.S.
economy is slowing considerably," said Boris Schlossberg,
senior currency strategist, at DailyFX.com in New York.
(Additional reporting by Caroline Valetkevitch, Frank Tang,
Pedro Nicolaci da Costa and Kevin Plumberg in New York; Editing
by Leslie Adler)
