* White House proposals to reduce bank risk roils markets
* European share prices slip in concert with U.S. markets
* U.S. bank shares hit by proposals
* U.S. Treasuries gain at stock market expense, gold falls
(Updates with closing prices, comment)
By Daniel Bases
NEW YORK, Jan 21 (Reuters) - Share prices dropped sharply
on Thursday after U.S. President Barack Obama proposed new
limits on top bank risk profiles, spurring safe-haven U.S.
Treasury purchases but undercutting gains for the U.S. dollar.
Obama said he is ready to fight the financial sector and
its lobbyists for rules that would bar banks from owning,
sponsoring or investing in hedge funds or private equity funds
for their own profit, causing a bank share sell-off. For more
see [].
Europe's stock markets, closing just as the announcement
was made, fell in concert with already weak U.S. stocks after a
surprise increase in U.S. weekly jobless claims reduced
optimism about economic recovery from the global financial
crisis. []
"If you look at bank earnings over the last few years, what
some of the more astute banks have been able to do is to smooth
(out) their earnings using trading activity," said Subodh
Kumar, chief investment strategist at Subodh Kumar & Associates
in Toronto.
"Presumably this (proposal) is going to hold that down. So
the ability to generate revenues just by trading on their own
accounts is going to go down."
Goldman Sachs Group <GS.N>, one of Wall Street's top
earners, lost 4.12 percent to $160.87 per share. The firm,
along with many of the other top U.S. banks, has been roundly
criticized for paying large bonuses. Goldman, earlier on
Thursday, reported better-than-expected fourth quarter net
income of $4.95 billion. []
JPMorgan <JPM.N> shares fell 6.59 percent to $40.54.
At the close, the Dow Jones industrial average <> fell
213.27 points, or 2.01 percent, at 10,389.88 while the Standard
& Poor's 500 Index <.SPX> lost 21.56 points, or 1.89 percent,
at 1,116.48. Both indexes had their worst one-day percentage
loss in nearly three months. The Nasdaq Composite Index <>
dropped 25.55 points, or 1.12 percent, at 2,265.70.
The pan European FTSEurofirst 300 <> fell 1.56
percent to a one-month closing low of 1,036.07. Mining
companies Anglo American <AAL.L>, BHP Billiton <BLT.L> and Rio
Tinto <RIO.L> fell between 3.12 and 6.15 percent.
The global trading day didn't start out as gloomy. Tokyo's
benchmark Nikkei 225 stock index <> rose 1.22 percent,
buttressed by gains in technology shares and a stable yen.
DOLLAR SINKS
The potential for a redrawing of how Wall Street banks
operate had a ripple effect across asset classes.
The proposals caused a sell-off in the U.S. dollar. It fell
sharply against the yen and relinquished gains against the
euro, which earlier hit a six-month low against the U.S.
currency.
"The dollar is taking it on the chin after these comments,
as the implication is they are negative for bank profitability.
Everyone was looking for the dollar to continue rallying but
the mood has definitely soured," said Shaun Osborne, senior
strategist at TD Securities in Toronto. []
The U.S. dollar index, which measures the greenback against
a basket of major trading-partner currencies, fell back from
near six-month highs to a gain of just 0.06 percent at 78.388
<.DXY>.
The dollar was down 0.91 percent at 90.42 against the yen
<JPY=> while the euro <EUR=> was off just 0.06 percent against
the dollar at $1.4093, having been as low as $1.4025 on
concerns about Greece's debt woes.
Concerns over Greece's debt problems drove yields on its
10-year government bonds versus German Bunds to 312 basis
points, the widest since Greece joined the euro zone in 2001.
However, an unconfirmed report in a Brussels-based weekly
newspaper that the European Union was mulling a loan to Athens
caused investors to buy back debt and snap the yield spread
tighter by 36 basis points. []
European bond prices rose and yields fell late in their
session as stock markets fell. The 10-year Bund yield
<EU10YT=RR> slipped 1.3 basis points to 3.212 percent.
Benchmark 10-year U.S. Treasuries <US10YT=RR> rose 14/32 of
a point in price, driving the yield down to 3.599 percent.
Spot gold prices <XAU=> fell $16.50, or 1.48 percent, to
$1,094.80, a near 3-week low, while U.S. light sweet crude oil
<CLc1> fell $1.72, or 2.21 percent, to $76.02 per barrel, a
one-month nadir.
(Additional reporting by Reuters correspondents worldwide,
Editing by Chizu Nomiyama)
