Goldman probe hurts stocks; euro extends gains
NEW YORK (Reuters) - U.S. and European stocks fell on Friday as news of a criminal investigation into Goldman Sachs weighed on bank shares, while the euro rose broadly on hopes Greece may secure financial aid in the next few days.
Slower-than-expected U.S. economic growth in the first quarter added to investor caution, although other data released later signaled vigor in the economic recovery, sending oil prices higher.
Treasury prices rose as stock losses triggered safe-haven buying and some investors preferred to take risk off the table on the last day of the month.
Shares of Goldman Sachs Group Inc (GS.N) plunged 9.39 percent on news U.S. federal prosecutors are investigating the Wall Street powerhouse, raising the possibility of criminal charges against the bank or its employees.
The Goldman news, combined to concerns about the chipmaker sector and lingering anxiety about Greece, caused major U.S. stock indexes to post their worst weekly performance since late January.
"You're seeing selling across the board from portfolio managers looking to reduce risk, based on the negative market implications of further damage to Goldman Sachs' reputation," said Michael James, senior trader at Wedbush Morgan in Los Angeles.
Investors also feared the Goldman news could result in stronger calls for financial regulation just as the U.S. Senate debated the theme for the second day.
The S&P financial index .GSPF lost 2.47 percent.
The Dow Jones industrial average .DJI ended lower 158.71 points, or 1.42 percent, at 11,008.61, while the Standard & Poor's 500 Index .SPX dropped 20.09 points, or 1.66 percent, to 1,186.69. The Nasdaq Composite Index .IXIC fell 50.73 points, or 2.02 percent, to 2,461.19.
During the week, the Dow fell 1.2 percent and the S&P 500 slipped 1.5 percent, while the Nasdaq slumped 2.6 percent.
Technology stocks fell sharply, with the PHLX semiconductor index .SOXX down 4.54 percent after South Korea's Samsung said inventory could grow in the second half of the year.
In Europe, stocks closed lower for a third straight week. The FTSEurofirst 300 .FTEU3 index of top European shares fell 0.72 percent, pressured by banks and oil companies.
Shares of BP (BP.L) dropped 1.49 percent, extending a fall of recent days as worries intensified about an oil spill from one of the firm's wells in the Gulf of Mexico.
Barclays (BARC.L) closed down 6.4 percent after results from its investment banking arm, Barclays Capital, disappointed with revenue growth failed to match the lofty levels reported by many rivals.
For the week, the pan-European benchmark index lost 2.7 percent, and was down 1.5 percent in the month of April. The index is still up more than 64 percent from a lifetime low hit on March 9, 2009.
World stocks measured by the MSCI All-Country World Index .MIWD00000PUS fell 0.62 percent, as gains of 0.59 percent in emerging-market stocks .MSCIEF cushioned the fall in developed countries.
The euro extended recent gains against the dollar, as expectations Greece will soon receive emergency aid helped to quiet jitters over how Athens will pay its debts.
The European single currency was up 0.64 percent at $1.3309. Still, the euro is down more than 1 percent in April, its fifth straight month of declines.
"The next week is really a very decisive week for the euro zone as well as for Europe as a whole," said Tammo Greetfeld, equity strategist at UniCredit in Munich.
Details of Greece's aid package are expected to be announced by Monday, sources familiar to the issue said. But investors remained cautious, awaiting details on the plan and the reaction in Athens, where angry unions were readying strikes to protest against severe austerity measures.
The anxiety about Greece's debt negotiations, combined with U.S. stock losses, fed steady safe-haven demand for U.S. Treasuries.
The benchmark 10-year note rose 18/32 in price, with the yield at 3.6628 percent. The 30-year bond climbed 35/32, with the yield at 4.5257 percent.
"We are seeing stocks getting hit, and we still have fears about Greece," said Thomas Roth, executive director in U.S. government bond trading at Mitsubishi UFJ Securities USA in New York.
The dollar erased gains against the yen, trading down 0.04 percent at 93.97 yen, as the U.S. stock market declined.
U.S. crude oil futures rose 98 cents to $86.15 a barrel as data provided more signs of economic recovery. April was the first month since September 2008 when the front-month contract has traded continuously above $80 a barrel.
U.S. GDP growth in the first quarter came in at a 3.2 percent annual rate, lagging projections for growth of 3.4 percent, but consumer spending rose, signaling a sustainable recovery is taking hold.
A separate report showing that business activity in the U.S. Midwest expanded more than expected in April added a positive tone on the economy.
Gold prices reached their highest level this year, trading above $1,180 an ounce during the session on a safe-haven alternative amid European debt worries.
For a graph on U.S. GDP: link.reuters.com/qur22k
Consumer sentiment: link.reuters.com/zet22k
(Additional reporting by Rodrigo Campos in New York; Editing by Andrew Hay)
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