(Updates with BoE, ECB decision)
By Natsuko Waki
LONDON, April 10 (Reuters) - Stocks fell broadly and the
dollar and sterling hit record lows against the euro on Thursday
as fresh concerns about the health of the banking sector and the
broader economy jolted financial markets.
Optimism that the worst of credit crisis may be over tapered
off after Lehman Brothers <LEH.N> said in a filing with the U.S.
Securities and Exchange Commission it had liquidated three funds
that had lost value and took a balance sheet hit.
Sterling was at a 11-year low on a trade-weighted basis as
the Bank of England cut interest rates, citing concerns about
tighter credit conditions and a deteriorating economic outlook.
The BoE's decision to trim rates by a quarter percentage
point to 5 percent disappointed some who had bet on a bigger
half-point cut. The European Central Bank left interest rates on
hold at 4 percent as expected, with its focus firmly on
inflation.
"Credit conditions have tightened and the availability of
credit appears to be worsening," said Ann O'Kelly, economist at
Citigroup.
"The disruption in financial markets could lead to a
slowdown in the economy that was sufficiently sharp to pull
inflation below the (BoE's) target." The BoE targets inflation
within one percentage point either side of 2 percent.
The FTSEurofirst 300 index <> was down 1.3 percent
while MSCI main world equity index <.MIWD00000PUS> was down
slightly on the day. U.S. stock futures fell half a percent
<SPc1>, indicating a weaker start on Wall Street.
Sterling had fallen as far as 80.29 pence per euro <EURGBP=>
and held near that level after the BoE decision. The
trade-weighted sterling <=GBP> index is at its weakest since
1996.
"They (BoE) haven't really done that much to address the
shortage of liquidity, so that means that, even as they cut the
official bank rate, those lower interest rates aren't getting
passed on to consumers and other borrowers," said Chris Iggo,
strategist at Axa Investment Managers.
"They need to both keep cutting rates and try to improve
liquidity and only then will lower interest rates start to
affect the real economy."
RENEWED CONCERNS
News from Lehman and the BoE's comments followed soft
first-quarter earnings reports this week and the IMF's grim
assessment of bank sector losses and the global economy.
The IMF cut its 2008 world growth forecast this week and
said losses from the credit crisis would approach $1 trillion.
This has overshadowed expectations that Group of Seven rich
nations would unveil a drastic plan that would help stabilise
banks and financial markets at their meeting this weekend.
The dollar hit record lows of $1.5912 per euro <EUR=>, while
it fell 0.5 percent against a basket of currencies <.DXY>.
Emerging sovereign spreads <11EMJ> widened 1 basis point
while emerging stocks <.MSCIEF> were up half a percent.
The June Bund future <FGBLM8> rose 70 ticks, garnering
safe-haven flows.
U.S. light crude <CLc1> rose half a percent to $111.44 a
barrel, within striking distance of Wednesday's record high of
$112.21. Gold <XAU=> ticked higher to $933.50 an ounce, helped
by oil prices.
(Editing by Ruth Pitchford)
