By Herbert Lash
NEW YORK, Jan 9 (Reuters) - Fears of a consumer
retrenchment hit world stock markets on Wednesday, while crude
oil prices climbed back toward $100 a barrel, and gold climbed
to a new record near $900 an ounce.
Investment bank Goldman Sachs said it expects the U.S.
economy to contract by 1.0 percent on an annualized basis in
the second and third quarters of this year, and oil prices
climbed after another drop in U.S. inventories was reported.
But the U.S dollar got a boost from comments by St. Louis
Federal Reserve President William Poole who said it would be a
mistake to say a U.S. recession is at hand.
The investor mood in Europe was gloomy too after British
retailer Marks & Spencer <MKS.L> reported its worst quarterly
performance in two years.
Germany also said that retail sales dropped and imports
fell by more than exports in November, suggesting consumers in
Europe's largest economy were struggling to replace the
spluttering export sector as that economy's main driver.
"We've started the year with a major, serious dose of
reality, and all the data that we see points to a very, very,
nasty economic environment, if not recession," said Simon
Clinch, director of U.S. equities at F&C Asset Management.
The Dow Jones industrial average <> was down 8.62
points, or 0.07 percent, at 12,580.45. The Standard & Poor's
500 Index <.SPX> was down 0.31 points, or 0.02 percent, at
1,389.88. The Nasdaq Composite Index <> was down 5.04
points, or 0.21 percent, at 2,435.47.
The FTSEurofirst 300 index <> was down 1.09 percent
and the DJ Stoxx index of European retailers <.SXRP> was off
5.5 percent.
Earlier, Japan's Nikkei <> ended up 0.49 percent at
14,599.16 gained, after initially tumbling 1.7 percent. The
Japanese index has still lost 20 percent over the past six
months and 4.6 percent so far in 2008.
Morgan Stanley's main world stock index <.MCI00000PUS> was
off 0.40 percent at 386.84, but the investment bank's emerging
market stocks index <.MSCIEF> was up 0.48 percent at 1,223.36
BOND YIELDS FALL FURTHER, BUT DOLLAR FIRMS
In debt markets, yields continued to fall in Europe and the
U.S. as stocks weakened on fears of economic slowdown and on
expectations the Federal Reserve will cut interest rates again
at its next meeting on January 30.
Dealers were awaiting Fed Chairman Ben Bernanke's first
comments on the economy in 2008 on Thursday.
Recent grim U.S. manufacturing and employment data have
intensified the likelihood the Fed will cut rates by half a
percentage point later this month.
The U.S. benchmark ten year note yield <US10YT=RR> slipped
to its lowest since March 2004 around 3.77 percent.
In euro zone government bonds, the interest rate-sensitive
two-year Schatz yield <EU2YT=RR> was down slightly at 3.786
percent, and the 10-year Bund yield <EU10YT=RR> was flat at
4.121 percent.
The European Central Bank is expected to keep interest
rates unchanged at its meeting on Thursday this week.
Currency investors also were focused on the U.S. equity
market, considered a barometer of risk aversion, but comments
by a Federal Reserve official on Wednesday, suggesting the U.S.
may avoid a recession, helped the New York Board of Trade's
U.S. dollar index to gain 0.35 percent at 76.38 <.DXY>.
The euro <EUR=> was down 0.31 percent at $1.4661 from a
previous session close of $1.4706. Against the Japanese yen,
the dollar <JPY=> was up 0.37 percent at 109.31 from a previous
session close of 108.91.
Sterling hit a record low against the euro and a nine-month
trough against the dollar as renewed fears about the British
retail sector stoked expectations of a UK interest rate cut.
GOLD RUSH
Spot gold <XAU=> surged to a record high of $891.40 an
ounce before slipping back as the U.S. dollar rose, powered by
heavy investor buying on global inflation fears, rising oil
prices, and a strong debut for Shanghai gold futures. Platinum
also pared gains after hitting life-time highs.
"Every so often there is some profit-taking, but gold is
bought on every dip," said Peter Hillyard, head of metals sales
at ANZ Investment Bank. "We are in a bull market and it's not
over yet."
(Additional reporting by Jeremy Gaunt in London)
