* Goldman Sachs disappoints
* Euro reverses after hits two-month high against dollar
* Stocks fail to hang on to gains
* Wall Street set for losses
By Jeremy Gaunt, European Investment Correspondent
LONDON, July 20 (Reuters) - Worries about the U.S. economic
recovery and bank exposure to risky debt combined with
disappointing earnings on Tuesday to snuff out a short stock
rally and reverse gains in the euro.
Wall Street looked set to open lower, particularly after
Goldman Sachs <GS.N> issued worse than expected earnings. The
firm said second-quarter earnings fell to 78 cents a share
compared to $4.93 a year earlier.
"It's a pretty significant slowdown in their overall
business," said Walter Todd, portfolio manager for Greenwood
Capital Associates in North Carolina.
The heavyweight investment bank followed technology
bellwethers International Business Machines <IBM.N> and Texas
Instruments <TXN.N> in posting quarterly revenues that fell shy
of expectations.
There was also growing concern about the U.S. economy after
Monday's NAHB/Wells Fargo Housing Market index for July fell
more than expected after a popular tax credit for homebuyers
expired in April.
That underlined fears about the recovery ahead of housing
data including housing starts on Tuesday.
Investor sentiment was also undermined when Hungary sold
less of its debt than expected, days after its talks with
international lenders were suspended.
World stocks as measured by MSCI <.MIWD00000PUS> were down
around a half a percent with the emerging market benchmark
trimming early gains to 0.1 percent. The Thomson Reuters global
stock index <.TRXFLDGLPU> was down 0.4 percent.
European stocks were heading for a five-day losing streak
with the pan-European FTSEurofirst 300 <> down 1 percent.
Japan's benchmark Nikkei stock index <> earlier shed
1.2 percent, reflecting investor concern about a U.S. slowdown.
EURO REVERSES
The euro was lower, reversing a climb to its highest against
the dollar in more than two months.
It retreated from $1.3029 hit on trading platform EBS as
some investors questioned whether the single currency would
sustain gains above $1.30, given that bank stress test results
due on Friday may reveal weakness in euro zone financial
institutions.
The poor demand at Hungary's debt offer also stung the euro
as it weighed on risk sentiment.
"We've seen risk appetite claw back a fair amount, and the
market is questioning whether that move is valid," said Jane
Foley, director of research at Forex.com.
The euro <EUR=> was trading at $1.2851.
German government bonds rose as the Hungary news further
boosted flight-to-safety flows.
"It shows that sovereign risks still remain a concern in
some areas and whilst the situation has generally improved, it
hasn't gone away," said Nick Stamenkovic, strategist at RIA
Capital Markets in Edinburgh.
(Additional reporting by Tamawa Desai, Naomi Tajitsu and
Harpreet Bhal; Editing by Ron Askew, John Stonestreet)
