* Global stocks fall on worries cost of banking bailouts
* Oil prices rise on speculation over further OPEC cuts
* US government debt slips amid skepticism on rescue plans
* Dollar gains on risk aversion and as U.S. stocks slump
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, March 3 (Reuters) - The dollar rose but global
stocks fell further on Tuesday, with the S&P 500 closing below
700 for the first time since 1996 on widespread concerns about
the cost of shoring up an ailing U.S. financial system.
Oil prices rose nearly 4 percent on expectations the
Organization of Petroleum Exporting Countries will cut
production again, while U.S. Treasury debt prices fell on
anxiety about the enormous amount of new government debt.
While slumping equity markets reflected an aversion to
risk, gold fell to a three-week low as waning inflows into
exchange-traded funds and the metal's failure to capitalize on
falling stock markets fueled fears its rally may be at an end.
U.S. stocks briefly rose more than 1 percent, but the rally
was not sustained. In Europe a key regional stock index fell to
a lifetime closing low as bank stocks continued to slide.
Federal Reserve Chairman Ben Bernanke in Senate testimony
left the door open to whether banks will need more money. The
size of a $700 billion bank rescue package depends on regulator
"stress tests" and the direction of the economy, he said.
"His comments were a reality check for the market that
nothing changed between yesterday and today," said Jim Awad,
managing director at Zephyr Management in New York. "It renewed
fears that there is no bottom in terms of toxic assets and no
bottom in terms of need for capital."
The Dow Jones industrial average <> closed down 37.27
points, or 0.55 percent, at 6,726.02. The Standard & Poor's 500
Index <.SPX> fell 4.49 points, or 0.64 percent, at 696.33. The
Nasdaq Composite Index <> slipped 1.84 points, or 0.14
percent, at 1,321.01.
The dollar gained against the yen and the euro in choppy
trading as investors sought shelter in the U.S. currency.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.07 percent at 89.085. Against
the yen, the dollar <JPY=> gained 1.07 percent at 98.25.
The euro <EUR=> fell 0.17 percent at $1.2562.
"We are seeing an inverse correlation between the dollar
and stock markets. When people are trading on fear about the
global economy then that benefits the dollar," said Chris
Gothard, currency strategist at Brown Brothers Harriman in
London.
Dan Cook, senior market analyst at IG Markets in Chicago,
said investors' uncertainty and stock volatility is boosting
the dollar.
"The dollar is in great demand because of high risk
aversion," Cook said. "The more uncertain it is, the better it
is for the dollar."
U.S. Treasury debt prices slipped on supply concerns even
as investors remain skeptical that government plans to get bad
debts off bank balance sheets are yielding results. That
sentiment normally would drive a safe-haven bid for bonds.
The prospect of a huge onslaught of U.S. debt issuance --
expected to reach some $2 trillion this year -- has pushed
yields up from record or multidecade lows in mid-December.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
8/32 in price to yield 2.89 percent. The 2-year U.S. Treasury
note <US2YT=RR> fell 2/32 in price to yield 0.90 percent.
In Europe, the pan-European FTSEurofirst 300 index <>
of leading shares fell 1.9 percent to close at 669.64 points,
the lowest close since the index's inception in July 1997.
Oil rose after slumping 10 percent on Monday. The global
recession has knocked prices from highs above $147 a barrel in
July, prompting OPEC to agree to deep production cuts.
U.S. crude <CLc1> settled at $41.65 a barrel, up $1.50 or
3.74 percent. London Brent crude <LCOc1> rose $1.46 to $43.70 a
barrel.
U.S. gold futures for April delivery <GCJ9> settled down
$26.40 at $913.60 an ounce in New York.
Overnight in Asia, stocks in Tokyo hit a 25-year low and
most major indexes in the region also fell.
(Reporting by Leah Schnurr, Matthew Robinson, Gertrude
Chavez-Dreyfuss, John Parry and Frank Tang in New York, and
Brian Gorman, Ian Chua, Naomi Tajitsu in London; writing by
Herbert Lash; Editing by Leslie Adler)
