(Updates prices, adds comments)
By Ian Chua
LONDON, Jan 31 (Reuters) - Jitters about further losses for
the financial sector got the better of investors on Thursday,
keeping global stocks under pressure and on track for their
steepest monthly slide in over five years.
Wall Street looked set for a weak start with stock futures
<SPc1><DJc1><NDc1> wallowing in the red as investors took cover
in the safety of government bonds after Fitch Ratings downgraded
bond insurer FGIC Corp's credit rating.
Standard & Poor's said it cut or may downgrade the ratings
of hundreds of billions of dollars of U.S. mortgage-backed
securities and collateralised debt obligations, taking the shine
off another hefty interest rate cut by the Federal Reserve.
If bond insurers, or monoliners, lose their top "AAA"
ratings, U.S. financial institutions will face fresh write-downs
of as much as $70 billion, according to Meredith Whitney,
banking analyst at brokerage Oppenheimer & Co.
"What's surrounding the monoline insurers is very important
for the market because of the consequences it'll have for
banks," said Thierry Lacraz, a strategist at Pictet & Cie.
This overshadowed the Fed's move on Wednesday to slash its
key fed funds rate by 50 basis points to 3 percent -- the lowest
since June 2005 -- following last week's emergency 75 basis
point cut to halt a sharp slowdown in an economy struggling with
a housing slump and credit crunch.
The FTSEurofirst 300 <> index of top European shares
fell 1.6 percent with Germany's DAX <>, London's FTSE
<> and France's CAC <> all down more than 1 percent.
MSCI world equity index <.MIWD00000PUS> was flat but has
fallen about 9 percent so far in January -- its biggest monthly
loss since late 2002.
Earlier, Japan's Nikkei <> managed to squeeze out a 1.9
percent gain on the day but ended the month down a whopping 11.2
percent -- its worst monthly performance in nearly 8 years.
OUTLOOK GRIM
Demand for less risky assets helped lift safe-haven
government bonds, pushing the March Bund futures <FGBLH8> up 50
ticks. The 10-year Bund yields <EU10YT=RR> eased to 3.95
percent, while the U.S. 10-year yield <US10YT=RR> was at 3.63
percent.
In the currency market, the dollar steadied from declines in
reaction to the Fed rate cut, rising 0.1 percent against a
basket of major currencies <.DXY>, benefiting from repatriation
flows as investors ditched risky investments.
But U.S. crude <CLc1> fell more than $1 towards $91 a barrel
on worries that heavier financial losses would drain the U.S.
economy and hurt demand at a time when inventories of crude and
gasoline are rising quickly.
Copper <MCU3> drew some support from the Fed rate cut and
was steady on the London Metal Exchange, while gold <XAU=>
traded in a slim range around $923 an ounce, taking a breather
after rising to an all-time high of $933.10 on Tuesday.
The fact that the Fed had lowered rates by 125 basis points
in nine days was not grounds for optimism, but a sign of a
really grim outlook, said Martin McMahon, FX strategist at
Credit Suisse in Zurich.
Euro zone data showing inflation rising to an all-time high
in January and economic sentiment plunging to two-year lows
underscored the negative global outlook. This followed figures
showing U.S. economic growth slowed abruptly in the fourth
quarter to its most sluggish in five years.
Markets are pricing in more U.S. rate cuts, giving a 50/50
chance the next move by the Fed will be either a 25 basis point
or 50 basis point reduction. <FEDWATCH>
"We're going to tread a bumpy path for the next several
months, until the market gets more comfortable with the
uncertainties it is facing now," said Stephen Dowds, head of
International Equities at Northern Trust.
