February 11, 2008

Growth worries batter global stocks

LONDON (Reuters) - Worries about a deeper global economic slowdown than expected battered equities on Monday and hit the dollar while commodity prices soared, adding fears of inflation to the mix.

Finance leaders from the Group of Seven major economies said at the weekend that the crumbling U.S. housing market had hurt the world economy and that conditions may worsen as debt-laden banks clamp down on credit.

At least partly in response, MSCI's main index of world stocks was down 0.2 percent, taking year-to-date losses to more than 11 percent, and its emerging market stock counterpart was down 1.5 percent on the day.

"One message that came out of the G7 statement over the weekend is that global growth is expected to slow, and it will be a much broader slowing than originally anticipated," said Adam Myers, market strategist at Credit Suisse.

European stocks dropped 1 percent in early trade but then recovered slightly. The FTSEurofirst 300 index of top European shares was down 0.4 percent after losing 3.7 percent last week.

"Spreads are widening again in credit markets and that means the market anticipates a very gloomy scenario," said Romain Boscher, head of equity management at Groupama Asset Management, in Paris.

Japan's market was closed for a holiday.

But while equities suffered, investors were pouring into a number of commodities.

Platinum hit a record high of $1,887 an ounce, bringing its rise this year close to 25 percent. Gold was steady, but at $923 an ounce it was not too far from its all-time high of $936.50.

Food staple wheat caused more worries for central banks, which are trying to boost flagging economies with lower interest rates but at the same time want to keep inflation at bay. Benchmark U.S. wheat futures surged more than 5 percent to a record $11.53 a bushel.

Rising food prices were in part behind a surprise rate rise in Egypt last week, underlining the stresses to monetary policy.

WEAKER DOLLAR

The dollar suffered from worries about the U.S. economy, falling a third of a percent against a basket of currencies. It hit a 2007 high against that basket a year go on Tuesday and is now more than 10 percent lower.

The euro was up 0.4 percent at $1.4564, partly on comments from European Central Bank policymakers which dampened speculation about a rate cut. Governing Council member Axel Weber told a German newspaper that the ECB had not relaxed its view on inflation risks.

The dollar was down 0.7 percent at 106.59 yen.

The Japanese currency benefited from the risk averse mood, as worries about global growth and falling equity markets prompting currency investors to exit risky trading bets funded by cheap borrowing in the yen.

Euro zone government bonds were mixed with the yield on 2-year paper flat at 3.09 percent and the 10-year up 3 basis points at 3.88 percent.

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