(Updates prices)
By Ian Chua
LONDON, Jan 23 (Reuters) - Persistent worries about a U.S.
recession undid the boost that Tuesday's surprise U.S. interest
rate cut gave to global markets, sending European stocks lower
on Wednesday and lifting safe-haven government bonds.
The yen, which tends to rise as investors pare risky trades,
also gained ground against the dollar and higher-yielding
currencies such as the euro.
"There's some nervousness out in the market because although
we had the rate cut in the United States, which was a positive
start to trying to put things on hold, people think the credit
crunch isn't over," said Mark Foulds, a trader at Tradindex.
The Federal Reserve on Tuesday slashed its key federal funds
rate by 75 basis points -- the largest cut in more than 23 years
-- to 3.50 percent a week ahead of its scheduled meeting,
underscoring the risks facing the U.S. economy.
"The fact the market has come off this morning shows us that
there is still a lot of downbeat news to come and that there's a
lot of negativity out there," Foulds added.
Investors believe a lot more needs to be done by the Fed to
shore up the U.S. economy, which some see as on the brink of
recession, hit by a slumping housing market and tight credit
conditions. Markets have priced in a further 50 basis point rate
cut at next week's Fed meeting. <FEDWATCH>
After rising as much as 1.6 percent, the FTSEurofirst 300
<> index of top European shares reversed direction to be
down 1.1 percent with Germany's DAX <> falling nearly 2
percent.
London's FTSE <> lost nearly 1 percent in choppy trade
after data showed Britain's economy grew slightly faster than
expected in the final quarter of 2007. []
This followed a 2 percent rebound for Japan's benchmark
Nikkei <> and a 4.5 percent rally for MSCI's measure of
other Asian stock markets <.MIAPJ0000PUS>.
Commodities looked vulnerable on fears that demand will be
chipped away by slower global growth. Copper <MCU3> was down
slightly on the London Metal Exchange, while U.S. crude <CLc1>
fell 93 cents to $88.28 a barrel.
MSCI world equity index <.MIWD00000PUS> pared earlier gains
to be up a slim 0.3 percent, still off a near 15-month low
plumbed a day earlier. It was, however, down about 12 percent
this year.
BONDS, YEN UP
But underlying worries about the global economy kept a bid
tone for Euro zone government bonds. The March Bund futures
<FGBLH8> advanced 74 ticks to 116.82.
The 10-year Bund yield <EU10YT=RR> slipped to 3.92 percent,
while the benchmark U.S 10-year Treasury yield <US10YT=RR> fell
to 3.43 percent, after earlier dipping below 3.4 percent for the
first time since mid-2003.
In the currency market, the dollar shed 0.5 percent against
the yen to 105.95 <JPY=> on the day, while the euro slid 0.9
percent to 154.46 yen <EURJPY=>.
The euro fell 0.3 percent versus the dollar to $1.4580.
Earlier, data showed Euro zone services growth slumped
significantly to below forecasts to a rate not seen in over 4
years this month, adding to the case for a rate cut by the
European Central Bank, analysts say.
"January's flash PMI surveys confirm that the slowdown in
Euro zone economic activity continues," said Martin Van Vliet,
an economist at ING.
"The further decline in the composite PMI highlights the
need for the ECB governing council to seriously reconsider its
baseline view that the euro zone economy will grow broadly in
line with its trend potential this year."
But ECB President Jean-Claude Trichet told legislators the
ECB needed to stay focussed on fighting inflation in the face of
a very significant market correction. []
(Editing by Ruth Pitchford)
