* Global shares fall on fears economic slowdown to spread
* Oil rises on report that U.S. fuel inventories declined
* Dollar rises on view U.S. growth to top Europe, Japan
* U.S. government debt rises; imports spur inflation fears
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Aug 13 (Reuters) - Oil prices rose on Wednesday
on data showing an unexpected drop in U.S. fuel inventories,
further undermining U.S. and European stocks already reeling
from signs of a slowing economy and persistent credit
concerns.
The U.S. dollar rose versus the euro amid expectations
economic growth in Europe and Asia may be slowing down more
sharply than the United States.
U.S. government debt prices rose after news that U.S.
import prices had risen more than expected in July, boosting
inflation concerns.
European shares fell more than 2 percent, driven lower by
sliding bank shares and the surge in crude oil that lifted
prices at one point by more than $3 a barrel, though the
biggest crude gains came after equity markets closed in
Europe.
Rising crude prices hit U.S. stocks too, which were also
weighed down by a profit shortfall at manufacturer Deere & Co
<DE.N>, and disappointing retailer outlooks and earnings.
Banks fell sharply on both sides of the Atlantic on worries
about global growth and the still unsettled credit crunch. The
market was pressured by the expiration of a rule that helped
stem abusive short selling in shares of 19 U.S. financial
companies.
"People are worried about the impact the credit crunch is
going to have on consumers," said Eric Kuby, chief investment
officer at NorthStar Investment Management Corp in Chicago.
A stronger-than-expected rise in July of U.S. import prices
added to investors' concerns that even as the economy slows,
price pressures are mounting. Another report showed retail
sales fell in July, albeit in line with expectations.
"The retail sales number this morning was another data
point suggesting that the economy is weakening and the consumer
is pulling back on their purchases," Kuby said.
Bank of America <BAC.N> and Citigroup <C.N> were the top
drags on the broad S&P 500; Caterpillar was the biggest drag on
the Dow. Oil shares rose on the spike in crude oil prices.
The Dow Jones industrial average <> was down 160.88
points, or 1.38 percent, at 11,481.59. The Standard & Poor's
500 Index <.SPX> was down 11.39 points, or 0.88 percent, at
1,278.20. The Nasdaq Composite Index <> was down 20.04
points, or 0.82 percent, at 2,410.57.
Banks were the worst performing sector in Europe, weighed
down by renewed worries about the damage from the credit crunch
on corporate balance sheets.
Royal Bank of Scotland <RBS.L> fell 6.4 percent, making it
the top individual drag on the European market. UBS <UBSN.VX>
fell 7.25 percent, France's BNP Paribas <BNPP.PA> slid 4.85
percent and Societe Generale <SOGN.PA> was off 6 percent.
Equities have been on the mend "because of falling crude
and falling commodities, but these are not good enough to lift
markets because prices are still ... above levels seen last
year," said Heino Ruland, a strategist with FrankfurtFinanz.
The rise in oil quickly pushed stocks into a reversal of
recent gains, as a key consumption report lifting energy
prices. Gasoline supplies fell by 6.4 million barrels, the
Energy Information Administration said, more than the 2.1
million barrel decline analysts expected. Distillates
inventories unexpectedly fell.
"Draws (which reduce supply) are bullish across the board.
Lower refinery output and lower imports led to the draws in the
products for the past week," said Tim Evans, energy analyst at
Citi Futures Perspective in New York.
U.S. light sweet crude oil <CLc1> rose $2.54 to $115.55 per
barrel.
Gold climbed as crude prices firmed in response to a dip in
U.S. oil product stocks, and on expectations jewelery demand
will recover after the precious metal's recent price slip.
Spot gold prices <XAU=> rose $13.45 to $824.10.
U.S. government debt was mixed. Euro zone government debt
also rose, taking direction from the UK debt market after a
Bank of England report fuelled rate cut expectations.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
5/32 to yield at 3.9181 percent. The 30-year U.S. Treasury bond
<US30YT=RR> was up 2/32, with the yield at 4.5342 percent.
The dollar was stronger, while sterling tumbled to an
11-year low after the Bank of England warned of an economic
"chill."
The yen also fell as Japan's economy contracted in the
second quarter.
While U.S. government reports showed retail sales dropped
in July for the first time in five months and import prices
rose more steeply than expected, investors viewed the
lackluster figures as a continuation of recent trends.
"The perception is that the slowdown here is bottoming,
while real problems are just about to start in places like
Europe," said Greg Salavaggio, a currency trader at Tempus
Consulting in Washington, D.C.
"The bid on the dollar will remain strong. The market will
be selling euros, sterling and yen and by default, the dollar
will benefit."
The U.S. dollar rose against major currencies, with the
U.S. Dollar Index <.DXY> up 0.16 percent at 76.252. Against the
yen, the dollar <JPY=> fell 0.32 percent at 108.86.
The euro <EUR=> rose 0.06 percent at $1.491.
Asian stocks dropped, with shares outside Japan falling to
a 17-month low, on fears of a sharp global slowdown.
Japan's Nikkei share average <> fell 2.1 percent, and
stocks elsewhere in Asia-Pacific <.MIAPJ0000PUS> slid to the
lowest since March 2007, according to an MSCI index. The index
is off 32 percent from a life high in November.
(Reporting by Ellis Mnyandu, Vivianne Rodrigues, Ellen
Freilich in New York and Amanda Cooper, Alastair Sharp, Jan
Harvey and Ian Chua in London)
(Writing by Herbert Lash. Editing by Richard Satran)
