* Global equities fall, dollar rises on banking fears
* U.S. govt debt lower on prospect of huge new supply
* Crude oil rises on expectations of further OPEC cuts
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, March 9 (Reuters) - Nagging concerns about banks
and a new round of fears about a global recession dragged down
equity markets worldwide on Monday and sparked risk aversion,
lifting the dollar and driving up interbank dollar borrowing
costs.
Oil jumped more than 3 percent to $47 a barrel as a naval
incident between the United States and China, the world's top
oil consumers, boosted geopolitical tensions and as dealers
pondered the possibility of deeper production cuts by OPEC.
U.S. Treasury debt prices were flat to modestly lower as
this week's $182 billion sale of government securities reined
in safety bids tied to persistent worries about the economy and
the financial sector.
MSCI's all-country world index <.MIWD00000PUS> fell to its
lowest point since March 2003, and is a few points away from
breaking through to lows last seen in 1995.
U.S. stocks slid in volatile trade and the Nasdaq set a
six-and-a-half-year low as shares of big pharmaceutical
companies fell after Merck's <MRK.N> proposed $41 billion
takeover of Schering-Plough <SGP.N>.
Large deals are traditionally deemed a show of support for
equity valuations but analysts said with the Dow and S&P 500 at
12-year lows, evidence of thawing credit markets and economic
recovery is needed to renew investors' interest in stocks.
"We are seeing confidence in general melt away and the
mark-to-market capital position of financial institutions
deteriorate rapidly," said Robert Tipp, chief investment
strategist with Prudential Investment Management's public
fixed-income group in Newark, New Jersey.
U.S. banking shares rose on optimism that Washington will
provide more clarity on government plans to shore up the U.S.
banking system. President Barack Obama met with Federal Reserve
Chairman Ben Bernanke, and the White House said Obama is
pleased with coordination between the administration and the
Fed.
But banking shares took the most points off the leading
index of top European shares as investors fed the financial
sector following news of further government stake-building,
fanning worries about the stability of Britain's banks.
With the outlook so dim, Barclays cut its year-end target
for the S&P 500 to 760 points, saying the probability of the
benchmark U.S. stock index hitting its prior target of 875 is
much lower now.
Growing fears about the ailing U.S. automakers and banking
drove interbank U.S. dollar borrowing costs up.
"We're in a holding pattern and this is a market that
doesn't like to wait for anything so (there is) probably still
a little bit of bias to the downside," said Jeffrey Kleintop,
chief market strategist at LPL Financial in Boston.
The Dow Jones industrial average <> closed down 79.89
points, or 1.21 percent, at 6,547.05. The Standard & Poor's 500
Index <.SPX> fell 6.85 points, or 1.00 percent, at 676.53. The
Nasdaq Composite Index <> shed 25.21 points, or 1.95
percent, at 1,268.64.
The FTSEurofirst 300 <> index of top European shares
closed down 0.7 percent at 657.30 points, while in Asia Japan's
Nikkei average <> closed at a 26-year low, off 1.2
percent. Other Asian markets slipped on worries about the fate
of General Motors <GM.N> and U.S. banks.
The dollar gained, reflecting its tracking of equity market
performance over the last few weeks. The dollar has tended to
benefit when stocks fall as investors seek shelter amid fears
of a collapse of banking systems worldwide.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.68 percent at 89.151. Against
the yen, the dollar <JPY=> rose 0.36 percent at 98.72.
The euro <EUR=> fell 0.28 percent at $1.2604.
"We're certainly in risk aversion mode and the trade right
now is to buy dollars, which to a large extent reflects huge
repatriation flows to the United States," said Robert Blake,
senior currency strategist at State Street in Boston.
The yen fell after Japan swung to its first current account
deficit in 13 years and as the deepening downturn in Japan has
taken the shine off the yen's attraction as a safe-haven
currency in recent weeks.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
break-even, yielding 2.87 percent. The 2-year U.S. Treasury
note <US2YT=RR> fell 2/32 in price to yield 0.97 percent.
The U.S. State Department said five Chinese ships,
including a naval vessel, harassed an unarmed U.S. Navy ocean
surveillance ship in international waters in the South China
Sea on Sunday. []
"Crude prices are up, I think, in a knee-jerk reaction to
the news of Chinese vessels harassing a U.S. Navy ship in the
South China Sea," said Phil Flynn, analyst at Alaron Trading in
Chicago.
U.S. crude <CLc1> settled up $1.55 at $47.07 a barrel,
while London Brent crude fell 72 cents to settle at $44.13 a
barrel.
U.S. gold futures ended more than 2 percent lower, erasing
last session's solid gains, as a dollar rise and a slight drop
in the holdings of gold-backed exchange traded funds triggered
heavy sell-stop orders.
Gold for April delivery <GCJ9> settled down $24.70 at
$918.00 an ounce in New York.
barrel.
(Reporting by Chuck Mikolajczak, Nick Olivari, Matthew
Robinson, Pedro Nicolaci da Costa in New York, Atul Prakash and
Emelia Sithole-Matarise in London; Writing by by Herbert Lash;
Editing by Leslie Adler)
