GLOBAL MARKETS-U.S. recession fears pin down stocks, dollar

                                
 By Ian Chua
                                
 LONDON, Feb 22 (Reuters) - Worries that the world's biggest
economy may be deteriorating more rapidly than expected sent
stocks from Sydney to London lower on Friday, and kept the
dollar pinned at two-week lows versus a basket of currencies.
                                
 U.S. data on Thursday showed U.S. mid-Atlantic factory
production slumped to its lowest level since the 2001 recession,
and an index of future U.S. economic activity pointed to even
tougher times ahead. [ID:nN21572086]
                                
 But safe-haven European government bonds, which rose earlier
on those U.S. worries, suffered a setback after a report showed
euro zone services growth unexpectedly bounced back in Feburary
from a 4-1/2 year low. [ID:nL20480445]
                                
 Still, investors were increasingly wary of taking risk with
European credit spreads widening. The iTraxx Crossover index
<ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, was
12 basis points wider at 589 points.
                                
 "This is going to be a Darwin market, survival of the
fittest and strongest," said Justin Urquhart, strategist at 7
Investment Management.
                                
 "The market is looking very short term. It's very nervous,
it can't find any longer-term reason to push the value up."
                                
 The FTSEurofirst 300 <.FTEU3> index of top European shares
fell 0.4 percent, with London's FTSE <.FTSE> down 0.5 percent
and Germany's DAX <.GDAXI> 0.8 percent lower.
                                
 Energy stocks such as Royal Dutch Shell <RDSa.L> were among
the losers after worries that weaker U.S. growth would slow
demand kept crude oil well off a recent all-time high above $101
a barrel. U.S. crude <CLc1> fell 40 cents to $97.77.
                                
 Earlier, Japan's Nikkei <.N225> lost 1.4 percent, while
MSCI's measure of other Asian stock markets <.MIAPJ0000PUS> slid
0.7 percent. MSCI's main world equity index <.MIWD00000PUS> was
0.2 percent lower.
                                
 
                                
 DOLLAR SUBDUED, BONDS CLIMB
                                
 In the currency market, the dollar touched a fresh two-week
low versus the euro and slipped against the yen, which tends to
benefit as investors pare risky carry trades that involve
borrowing the low-yielding currency.
                                
 The euro <EUR=> traded at $1.4835, after peaking at $1.4847
earlier, while the dollar eased to 107.22 yen <JPY=>, well off
the high above 108 yen in the previous session.
                                
 "It is a weak dollar story more than anything else. As you
saw yesterday the Philly Fed was really what hurt the dollar,"
said Niels Christensen, FX strategist at Nordea in Copenhagen.
                                
 In contrast, "there is no sign of an early rate cut from the
ECB."
                                
 The ECB has held its benchmark rate at 4 percent since last
June while the Fed has slashed its key rate to 3 percent.
                                
 Investors, who initially took cover among government bonds,
reversed those trades after the better-than-expected euro zone
services data, pushing yields up. The 10-year Bund yield
<EU10YT=RR> edged up to 4.0 percent, while the 2-year yield
<EU2YT=RR> rose to 3.349 percent.
                                
 Also seen as a safe haven in times of market woes, gold
<XAU=> traded at $948.50 an ounce, not far off its all-time high
of $953.60 set a day earlier.
                                
 Dealers said gold's uptrend remained intact with the
prospect of more U.S. interest rate cuts supporting its appeal
as an alternative investment.
                                
 (Editing by Ruth Pitchford)