GLOBAL MARKETS-Record oil, AIG loss drag down global stocks

Reuters: [2008-05-09 22:12:00]

(Adds close of U.S. markets)

By Herbert Lash

NEW YORK, May 9 (Reuters) - Oil's relentless surge to a fresh high on Friday stoked worries about the economy and pressured stock markets in the United States and Europe, while a $7.8 billion loss at AIG, the world's largest insurer, rekindled fears that the credit crisis is not over.

Oil rose to over $126 a barrel, extending gains to more than 11 percent since the start of May and fueling fears that the high prices will spark inflation throughout the global economy. Oil set a record high every day this week.

Banking shares led stock markets lower in both the United States and Europe after U.S. insurer American International Group <AIG.N> reported its record quarterly loss late on Thursday.

AIG wrote down assets linked to subprime mortgages and also said it would raise $12.5 billion in new capital to strengthen its balance sheet.

News on Friday that Citigroup <C.N>, the top U.S. bank, plans to shed $400 billion in assets also pressured the financial sector.

"Over the past weeks, investors got the feeling that the credit crisis was easing, but a piece of news like that is sort of a wake-up call that reminds us that the storm is far from over," said Marie-Pierre Peillon, head of equity and credit research at Groupama Asset Management in Paris.

"This Citigroup move might just be the beginning."

Paul Nolte, director of investments at Hinsdale Associates in Hinsdale, Illinois, voiced a similar sentiment: "Many more financial institutions will be needing to raise capital to shore up balance sheets."

The Dow Jones industrial average <.DJI> fell 120.90 points, or 0.94 percent, at 12,745.88. The Standard & Poor's 500 Index <.SPX> declined 9.40 points, or 0.67 percent, at 1,388.28. The Nasdaq Composite Index <.IXIC> fell 5.72 points, or 0.23 percent, at 2,445.52.

For the week, the Dow fell 2.4 percent, the S&P 500 dropped 1.8 percent and the Nasdaq fell 1.3 percent.

Shares of AIG fell 8.8 percent to $40.28 on Friday, while Citigroup lost 2.8 percent to $23.63. Citigroup was the second most actively traded share on the New York Stock Exchange, and AIG was the third.

Despite the higher crude oil prices, Exxon Mobil <XOM.N> was among the top drags on the S&P 500 and Dow, with its shares down 0.8 percent at $88.82. Analysts said investors may be locking in profits after strong gains in recent weeks. In addition, others said that when energy prices reach a certain level it becomes more difficult for energy companies to pass on their higher costs to consumers.

In Europe, shares fell and capped their first weekly loss in a month on renewed concern over the outlook for the financial sector and the drag from the record high oil.

The FTSEurofirst 300 index <.FTEU3> of top European shares fell 1.3 percent to close at 1,342.68 points. Declining shares outnumbered advancers by about five to one.

The DJ Stoxx index of European banks <.SX7P> fell 1.7 percent, bringing this week's decline to 3.7 percent.

Societe Generale <SOGN.PA>, BNP Paribas <BNPP.PA> and Barclays <BARC.L> each lost between 2 percent and 2.5 percent.

French drugmaker Sanofi-Aventis <SASY.PA> was the biggest individual negative weight after the threat of generic competition for its blockbuster blood-thinner Plavix surfaced in Europe. Sanofi shares fell nearly 6 percent.

WORRIES BOOST GOVERNMENT DEBT

The renewed credit worries, prompted by the loss at AIG, boosted the appeal of safe-haven government debt on both sides of the Atlantic. The sagging stock markets helped bolster low-yielding currencies such as the yen and led the dollar to fall against most currencies on a rise in risk aversion and heightened concern about the health of the U.S. economy.

Benchmark 10-year U.S. Treasury notes posted their best week in nearly two months while the yield on 10-year Bunds fell to their lowest in three weeks to below the key psychological 4 percent level.

"The rise in risk aversion is mostly AIG," said Ron Simpson, director of FX research at Action Economics in Tampa, Florida. "It's brought credit market nervousness back."

French industrial production fell 0.8 percent in March from the previous month, a sharper drop than expected, according to data which highlighted slowing growth in the euro zone.

"You get the feeling from the corporate sector that the international credit crisis is taking its toll and this will change the entire landscape of earnings forecasts, which for the time being are still quite upbeat," said Heino Ruland, a strategist for FrankfurtFinanz.

In commodities markets, U.S. crude <CLc1> settled up $2.27 at $125.96 a barrel before rising to a record $126.25 in late post-settlement trade. London Brent crude <LCOc1> gained $2.56 to settle at $124.40 a barrel, off the earlier high of $125.90.

"Lingering geopolitical fears and high heating oil prices are helping the market, but the speed of the rise is too fast," said Tatsuo Kageyama, an analyst at Kanetsu Asset Management in Tokyo.

The dollar fell against major currencies, with the U.S. Dollar Index <.DXY> down 0.57 percent at 73.048.

The euro <EUR=> rose 0.47 percent at $1.5478, and against the yen, the dollar <JPY=> fell 0.72 percent at 102.98.

U.S. Treasury debt prices rose.

U.S. Treasury debt prices were mixed, with longer-dated securities rising and short-maturity notes falling.

The benchmark 10-year U.S. Treasury note <US10YT=RR> rose 1/32 to yield 3.78 percent. The 2-year U.S. Treasury note <US2YT=RR> fell 2/32 to yield 2.25 percent. The 30-year U.S. Treasury bond <US30YT=RR> gained 8/32 to yield at 4.53.

Gold also finished up on the back of record crude oil, as the surge boosted gold's appeal as a hedge against inflation.

Gold has traded in lock-step with movement in the energy market, which it has dramatically underperformed.

The June contract <GCM8> for gold in New York settled up 3.70 at $885.80 an ounce.

Resurgent oil surge weighed on Asian shares and earnings worries highlighted by Toyota comments pressured Japanese exporters, sending Tokyo's Nikkei average <.N225> down 2 percent.

Shares across the rest of Asia <.MIAPJ0000PUS> fell 0.5 percent. (Reported by Jennifer Coogan, Richard Leong, Nick Olivari in New York and Amanda Cooper, Atul Prakash, Santosh Menon and Kirsten Donovan in London; Editing by Leslie Adler)

((herb.lash@thomsonreuters.com; +1 646 223 6019; Reuters Messaging: herb.lash.reuters.com@reuters.net)) ((Multimedia versions of Reuters Top News are now available

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GLOBAL MARKETS-Record oil, credit worries dog global stocks

Reuters: [2008-05-09 19:06:00]

(Recasts with U.S. markets, adds byline; dateline previous LONDON)

By Herbert Lash

NEW YORK, May 9 (Reuters) - Oil's relentless surge to new highs on Friday and a record $7.8 billion loss at AIG, the world's largest insurer, rekindled concerns that the bite from a credit crunch is not over, dragging down stocks around the world.

A rise in oil to over $126 a barrel, the fifth straight session of record gains, fueled fears that the high prices will spread inflation throughout the economy.

Banking shares led stock markets lower in both the United States and Europe after U.S. insurer American International Group <AIG.N> reported a record-breaking $7.8 billion quarterly loss late on Thursday as it wrote down assets linked to subprime mortgages. AIG also said it would raise $12.5 billion in new capital to strengthen its balance sheet.

News on Friday from Citigroup <C.N>, the top U.S. bank, that it plans to shed $400 billion in assets also pressured the financial sector.

"Over the past weeks, investors got the feeling that the credit crisis was easing, but a piece of news like that is sort of a wake-up call that reminds us that the storm is far from over," said Marie-Pierre Peillon, head of equity and credit research at Groupama Asset Management in Paris.

"This Citigroup move might just be the beginning."

Paul Nolte, director of investments at Hinsdale Associates in Hinsdale, Illinois, voiced a similar sentiment: "Many more financial institutions will be needing to raise capital to shore up balance sheets."

In the U.S. stock markets, the Dow Jones industrial average <.DJI> was down 108.04 points, or 0.84 percent, at 12,758.74. The Standard & Poor's 500 Index <.SPX> was down 10.83 points, or 0.77 percent, at 1,386.85. The Nasdaq Composite Index <.IXIC> was down 10.56 points, or 0.43 percent, at 2,440.68.

Shares of AIG fell 8.3 percent to $40.50, while Citigroup lost 0.8 percent to $24.10

In Europe, shares fell, capping their first weekly loss in a month, on renewed concern over the outlook for the financial sector and the drag from the record high oil.

The FTSEurofirst 300 index <.FTEU3> of top European shares fell 1.3 percent to close at 1,342.68 points. Declining shares outnumbered advancers by about five to one.

The DJ Stoxx index of European banks <.SX7P> fell 1.7 percent, bringing this week's decline to 3.7 percent.

Societe Generale <SOGN.PA>, BNP Paribas <BNPP.PA> and Barclays <BARC.L> each lost between 2 percent and 2.5 percent.

French drugmaker Sanofi-Aventis <SASY.PA> was the biggest individual negative weight after the threat of generic competition for its blockbuster blood-thinner Plavix surfaced in Europe. Sanofi shares fell nearly 6 percent.

WORRIES BOOST GOVERNMENT DEBT

The renewed credit worries, prompted by the loss at AIG boosted the appeal of safe-haven government debt on both sides of the Atlantic, while the sagging stock markets helped bolster low-yielding currencies such as the yen and led the dollar to fall against most currencies on a rise in risk aversion.

Benchmark 10-year U.S. Treasury notes posted their best week in nearly two months while the yield on 10-year Bunds fell to their lowest in three weeks to below the key psychological 4 percent level.

"The rise in risk aversion is mostly AIG," said Ron Simpson, director of FX research at Action Economics in Tampa, Florida. "It's brought credit market nervousness back."

French industrial production fell 0.8 percent in March from the previous month, a sharper drop than expected, according to data which highlighted slowing growth in the euro zone.

"You get the feeling from the corporate sector that the international credit crisis is taking its toll and this will change the entire landscape of earnings forecasts, which for the time being are still quite upbeat," said Heino Ruland, a strategist for FrankfurtFinanz.

U.S. light sweet crude oil <CLc1> rose $1.08 to $124.77 per barrel, off a record high of $126.20 a barrel.

London Brent crude <LCOc1> rose $1.41 to $124.25 per barrel, after rising to $125.90.

London Brent crude rose $1.41 to $124.25 per barrel, after rising to $125.90.

"At some point oil gets too high for them to make money," said Todd Leone, head of listed equity trading at Cowen & Co. in New York. "The higher crude goes, the harder it is to pass along higher prices to the consumer."

The dollar fell against major currencies, with the U.S. Dollar Index <.DXY> down 0.46 percent at 73.131.

The euro <EUR=> rose 0.32 percent at $1.5455, and against the yen, the dollar <JPY=> fell 0.72 percent.

U.S. Treasury debt prices rose.

The benchmark 10-year U.S. Treasury note <US10YT=RR> rose 8/32 to yield 3.75 percent. The 2-year U.S. Treasury note<US2YT=RR> rose /32 to yield 2.22 percent. The 30-year U.S. Treasury bond <US30YT=RR> rose 18/32 to yield 4.51 percent.

Spot gold prices <XAU=> fell 75 cents to $881.55.

Resurgent oil surge weighed on Asian shares and earnings worries highlighted by Toyota comments pressured Japanese exporters, sending Tokyo's Nikkei average <.N225> down 2 percent.

Shares across the rest of Asia <.MIAPJ0000PUS> fell 0.5 percent. (Reported by Jennifer Coogan, Richard Leong, Nick Olivari in New York and Amanda Cooper, Atul Prakash, Santosh Menon and Kirsten Donovan in London; Editing by Leslie Adler) ((herb.lash@thomsonreuters.com; +1 646 223 6019; Reuters Messaging: herb.lash.reuters.com@reuters.net)) ((Multimedia versions of Reuters Top News are now available

for: * 3000 Xtra: visit

http://topnews.session.rservices.com

* BridgeStation: view story .134

For more information on Top News:

http://topnews.reuters.com)) Keywords: MARKETS GLOBAL

GLOBAL MARKETS-Oil near $126 hits stocks as credit worries back

Reuters: [2008-05-09 13:38:00]

(Updates with Wall Street outlook)

By Jeremy Gaunt, European Investment Correspondent

LONDON, May 9 (Reuters) - Oil prices bounded to nearly $126 a barrel on Friday, hitting global stock markets along with worries about the financial sector following losses at the world's largest insurer, AIG.

European shares were down more than 1.5 percent and Japan closed down more than 2 percent. Wall Street looked set for a poor start.

Weighing on many stocks was American International Group's <AIG.N> posting of its largest ever quarterly loss on Thursday after writing down assets linked to subprime mortgages. It said it would raise $12.5 billion to strengthen its balance sheet.

Investors are generally persuaded that the worst of the subprime woes and accompanying credit crisis is behind them, but are still highly sensitive to bad news on the subject.

Japanese shares were also shaken by Toyota Motor Corp <7203.T>, the world's biggest automaker, forecasting its first annual net profit decline in seven years as it faces the triple blow of a stronger yen, rising materials prices and a slowing U.S. economy.

The Nikkei average <.N225> closed down 2.1 percent or 287.92 points at 13,655.34. It has, however, gained nearly 20 percent from a year low hit on March 17.

Europe's FTSEurofirst 300 <.FTEU3> was down 1.7 percent.

"(There are) writedowns at AIG and the capital raising, some poor results from European insurers, some stocks downgrades in the financial sector. And the oil price is pretty high, which might be unsettling people a little," said Kevin Gardiner, global equity strategist at HSBC.

HEADY OIL

Record high oil prices brought with them feats about global inflation, slow economic growth and costs to cut into corporate profits.

Oil rose to a fresh record just shy of $126 a barrel.

U.S. crude for June delivery <CLc1> rose as far as $125.98, surpassing the previous record of $124.61 hit on Thursday. Later, it was at $125.68.

"Funds are pouring into the crude market as prices have been performing extremely well," said Tatsuo Kageyama, analyst at Kanetsu Asset Management in Tokyo.

"Lingering geopolitical fears and high heating oil prices are helping the market, but the speed of the rise is too fast."

Gas oil futures <LGOc1>, the benchmark for European heating oil and diesel contract, also surged to a new record high on worries about tight global diesel supplies.

DOLLAR FALLS

The dollar fell broadly while the low-yielding yen benefited as high oil prices and falling stocks dented sentiment on the U.S. economy.

The euro added to gains made the previous session after European Central Bank President Jean-Claude Trichet said that inflation remained his top concern, suggesting the bank won't cut interest rates soon.

The euro had fallen to a two-month trough below $1.53 because some investors had expected Trichet, speaking after an ECB meeting at which rates were kept unchanged, to temper his tough talk on inflation and focus on signs of slowing euro zone growth.

Against a basket of major currencies, the dollar was down 0.5 percent <.DXY>.

The euro was up 0.4 percent at $1.5463 <EUR=>, nearly two cents above a two-month low of $1.5284 set on Thursday before Trichet's news conference.

The dollar was down 0.8 percent against the yen at 102.90 <JPY=>.

Euro zone government bonds were higher, boosted by falling equity markets. The 10-year yield <EU10YT=RR> was down 5 basis points at 4.016 percent while the two year was <EU2YT=RR> down 4 basis points at 3.675 percent. (Additional reporting by Antonina Vorobyova; Editing by Ruth Pitchford) ((jeremy.gaunt@thomsonreuters.com; +44 207 542 1028; Reuters Messaging: jeremy.gaunt.reuters.com@reuters.net))

Keywords: MARKETS GLOBAL

GLOBAL MARKETS-Oil price hits stocks as credit worries return

Reuters: [2008-05-09 10:29:00]

By Jeremy Gaunt, European Investment Correspondent

LONDON, May 9 (Reuters) - Oil prices bounded close to $125 a barrel on Friday, hitting global stock markets as worries also returned about the financial sector following losses at the world's largest insurer, AIG.

European shares were down more than 1 percent and Japan closed down more than 2 percent.

Weighing on many stocks was American International Group's <AIG.N> posting of its largest ever quarterly loss on Thursday after writing down assets linked to subprime mortgages. It said it would raise $12.5 billion to strengthen its balance sheet.

Investors are generally persuaded that the worst of the subprime woes and accompanying credit crisis is behind them, but are still highly sensitive to bad news on the subject.

Japanese shares were also shaken by Toyota Motor Corp <7203.T>, the world's biggest automaker, forecasting its first annual net profit decline in seven years as it faces a triple blow of a stronger yen, rising materials prices and a slowing U.S. economy.

The Nikkei average <.N225> closed down 2.1 percent or 287.92 points at 13,655.34. It has, however, gained nearly 20 percent from a year-low hit on March 17.

Europe's FTSEurofirst 300 <.FTEU3> was down 1.3 percent.

Hanging over investors, meanwhile, were concerns about record high oil prices, which could boost global inflation, slow economic growth and cut into corporate profits.

Oil rose to a fresh record near $125 a barrel.

U.S. crude for June delivery <CLc1> rose as far as $124.70, surpassing the previous record of $124.61 hit on Thursday. Later, it was at $124.46.

"Funds are pouring into the crude market as prices have been performing extremely well," said Tatsuo Kageyama, analyst at Kanetsu Asset Management in Tokyo.

"Lingering geopolitical fears and high heating oil prices are helping the market, but the speed of the rise is too fast."

DOLLAR FALLS

The dollar fell broadly while the low-yielding yen benefited as high oil prices and falling stocks dented sentiment on the U.S. economy.

The euro added to gains made the previous session after European Central Bank President Jean-Claude Trichet said that inflation remained his top concern, suggesting the bank won't cut interest rates soon.

The euro had fallen to a two-month trough below $1.53 as some investors expected Trichet, speaking after an ECB meeting at which rates were kept unchanged, to temper his tough talk on inflation and focus on signs of slowing euro zone growth.

Against a basket of major currencies, the dollar was down 0.5 percent <.DXY>.

The euro was up 0.3 percent at $1.5453 <EUR=>, nearly two cents above a two-month low of $1.5284 set on Thursday before Trichet's news conference.

The dollar was down 0.4 percent against the yen at 103.28 <JPY=>.

Euro zone government bonds were higher, boosted by falling equity markets. The 10-year yield <EU10YT=RR> was down 4 basis points at 4.032 percent while the two year was <EU2YT=RR> down 5 basis points at 3.669 percent.

(Editing by Gerrard Raven) ((jeremy.gaunt@reuters.com; +44 207 542 1028; Reuters Messaging: jeremy.gaunt.reuters.com@reuters.net))

Keywords: MARKETS GLOBAL

GLOBAL MARKETS-Unstoppable oil hits new record, stocks wilt

Reuters: [2008-05-09 08:56:00]

(Adds European markets, quotes, updates prices)

By Louise Heavens

SINGAPORE, May 9 (Reuters) - Oil's relentless surge to a new peak above $124 weighed on Asian shares on Friday, while earnings worries highlighted by Toyota comments pressured Japanese exporters, sending Tokyo's Nikkei down 2 percent.

European markets were set to open lower, with financial bookmakers in London expecting Britain's FTSE 100 <.FTSE>, Germany's Dax <.GDAXI>, and France's CAC-40 <.FCHI> seen down between 0.5-0.9 percent.

The retreat in equity markets, which had rallied sharply since mid-March, lured investors to bonds. Treasuries rose in Asian trade and Japanese government bonds surged as investors rushed to lock in relatively high yields.

The euro held onto its gains after bouncing back from a two-month low against the dollar on Thursday when the head of the European Central Bank dampened some expectations for rate cuts by signalling that fighting inflation was his top concern.

Crude oil's record breaking run had kept stocks on the back foot earlier this week as investors digested the prospect of what Goldman Sachs predicted could be a new spike to $200 a barrel.

By 0553 GMT, crude was up almost a dollar at $124.67 a barrel <CLc1>, having earlier hit an intraday record of $124.70.

Another inflation worry has been rising food costs. Rice futures <RRN8> headed back towards last month's all-time high on prospects of reduced output from cyclone-devastated Myanmar.

Despite rising oil prices, investors drew some support on increased optimism that the U.S. economy, while softening, was not altogether cracking under the strain of the subprime crisis.

AUTO CONCERNS

Tokyo's Nikkei average <.N225> ended down 2.1 percent, with the world's biggest automaker Toyota <7203.T> falling after it forecast its first annual profit decline in seven years. [ID:nT171793]

A firmer yen against the dollar this week also weighed.

"Toyota's outlook is negative news for the overall auto industry. Investors have become wary about earnings by other automakers," said Katsuhiko Kodama, a senior strategist at Toyo Securities.

Shares across the rest of Asia <.MIAPJ0000PUS> fell 0.4 percent. The benchmark is down just under 8 percent so far this year.

Seoul <.KS11> fell 1.3 percent, with refiners squeezed by ever rising oil prices. Singapore stocks <.FTSTI> dipped 0.7 percent and Taiwan <.TWII> ended down 0.8 percent.

But Australia <.AXJO> bucked the trend to rise 0.9 percent, boosted by miners and resources companies and banks after National Australia Bank <NAB.AX> reported upbeat earnings.

EURO GROWTH

Despite the ECB's inflation focus, traders said the euro could come under renewed pressure against the dollar as the market shifts focus to selling currencies with a deteriorating growth outlook.

"Concern about slowing euro zone growth is still making the euro vulnerable," said a trader at a Japanese bank.

The dollar was little changed at 103.37 yen <JPY=> on the day, but was down from close to 105.58 yen on Wednesday, while the euro was also steady at 159.78 yen <EURJPY=R>.

Japanese government bonds surged, with the benchmark 10-year yield dropping sharply from a seven-month high as investors rushed to buy paper at higher yields after putting a poor 10-year debt sale behind them.

"Investors are buying as they figured that bond yields had limited scope for a further rise after seeing the market hanging in there despite a weak auction," said Atsushi Ito, JGB strategist at Morgan Stanley.

June 10-year futures climbed 0.80 points to 136.60. The benchmark 10-year yield fell 8.5 basis points to 1.555 percent <JP10YTN=JBTC>, well off a seven-month high of 1.680 percent struck this week.

In the precious metals' market, gold held near a one-week high, supported by the euro's rise from Thursday. Spot gold <XAU=> was up at $884.15/885.10 an ounce, not far from Thursday's 1-week high of $885.25.

Platinum <XPT=> jumped to $2,028/$2,048 an ounce. ((For the state of play of Asian stock markets please click on: <0#.INDEXA>)) (Editing by Neil Fullick) ((rm:// louise.heavens. reuters.com@reuters.net; Email: louise.heavens@reuters.com; Telephone: +65 6870 3867)) Keywords: MARKETS GLOBAL