(Recasts, updates to New York close)
By Cal Mankowski
NEW YORK, Jan 9 (Reuters) - The momentum of the slide in
world stock markets this week slowed on Wednesday, with U.S.
stocks ending higher, but European stocks lower, though views
on whether the U.S. economy would see a recession this year
remained mixed.
St. Louis Federal Reserve President William Poole said a
U.S. recession is not a certainty, though 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.
After more than a week of falls in U.S. stocks, investors
went bargain hunting in sectors seen as resistant to economic
contraction, such as health care and consumer staples.
"We certainly have reached some oversold levels with all
the uncertainty going forward about interest rates and the
economy," said broker at FuturePath Trading LLC in Chicago.
"You're always going to have people looking to buy at
distressed price and now we've got some."
The Dow Jones industrial average <> ended up 1.18
percent at 12,737.34, while the benchmark Standard & Poor's 500
Index <.SPX> recovered 1.36 percent to 1,409.09 and the Nasdaq
Composite Index <> gained 1.37 percent to 2,473.85.
Earlier European equities ended at their lowest close in
1-1/2 months.
Shares of European retailers were among the hardest hit,
with Marks & Spencer <MKS.L> tumbling 19 percent after
reporting its worst quarterly performance in two years.
Germany also said that retail sales dropped in November,
suggesting consumers in Europe's largest economy were
struggling to replace the spluttering export sector as that
economy's main driver.
The FTSEurofirst 300 <> index of top European shares
closed 1.2 percent lower at 1,449.06 points. The index has
already lost 3.8 percent in 2008, retreating in four of the six
first sessions of the year.
In Japan earlier on Wednesday, stocks rode a wave of
bargain-hunting to the second positive close, after earlier
hitting an 18-month low. The benchmark Nikkei gained 0.49
percent to 14,599.16.
Morgan Stanley's main world stocks index ended up 0.20
percent at 389.16, after more than a week of falls.
BOND MARKETS STEADY BUT STILL A SAFE HAVEN
In debt markets, euro zone government debt rose on
Wednesday as signs of waning consumer confidence hit stock
markets and boosted demand for safe-haven assets, a day before
closely-watched European Central Bank and Bank of England
interest rate decisions.
"The Bank of England's rate decision should be a close
shave but we expect the MPC to cut this week," David Brown,
Bear Stearns' chief European economist, wrote in a note. "The
ECB should keep rates on hold and the key to watch for will be
how hawkish Trichet sounds in the subsequent ECB press
conference."
In euro zone government bonds, the yield on the
interest-rate sensitive two-year Schatz <EU2YT=RR> slipped to
around 3.742 percent, while the 10-year Bund yield <EU10YT=RR>
fell to around 4.09 percent.
The U.S. Federal Reserve's next rate decision is expected
on Jan. 30.
According to a Reuters poll, the Federal Reserve will cut
interest rates by at least a quarter point this month, with a
growing number of Wall Street firms seeing a chance of an even
bigger cut following Friday's dismal employment report.
U.S. Treasuries were mixed on Wednesday, with the benchmark
10-year Treasury note yield <US10YT=RR> around 3.81 percent
after falling to its lowest level since March 2004.
Steadier U.S. stock and bond markets, and weakness in
German retail sales which weighed on the euro, helped the U.S.
dollar to firm on Wednesday.
"Markets are starting to price in problems for the euro. We
saw further weak data out of Germany today that further fueled
that type of bet,' said David Gilmore, partner at FX Analytics
in Essex, Connecticut.
The euro was down 0.4 percent at $1.4650 <EUR=>, while the
dollar was up 0.5 percent at 109.45 yen <JPY=>.
OIL SLIPS, GOLD SEES NEW RECORD
Crude oil prices ended lower on Wednesday as rises in U.S.
petroleum inventories outweighed a fall in crude oil supplies.
On the New York Mercantile Exchange February crude oil
<CLG8> fell 72 cents to $95.61 after rising to a record over
$100 a barrel last week.
Gold prices <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, despite talk
of a U.S. economic recession.
"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 Herbert Lash in New York and
Jeremy Gaunt in London)
