GLOBAL MARKETS-Gold sets record high, global stocks slip further

Fri Aug 19, 2011 4:03pm EDT

* Gold hits second record high on flight-to-safety buying

* Global stocks slide as dollar's slump buoys commodities

* Dollar plunges vs yen on scant intervention speculation

* Market reacts to European bank funding, recession fears (Updates prices)

By Herbert Lash

NEW YORK, Aug 19 (Reuters) - Gold set a record high and equity markets slid anew on Friday as lingering fears about Europe's debt crisis and a potential slide into recession for major economies kept the bid for safe-havens alive.

Commodity prices rebounded after the U.S. dollar plumbed a record low against the yen on speculation Japanese authorities will not intervene too much to halt the yen's surge. For details see: [ID:nN1E77I0EC]

Gold prices rallied almost 3 percent early in the session as investors sought refuge from Thursday's hefty losses in stocks, when the yield on 10-year U.S. government bonds slipped below 2 percent for the first time since at least 1950.

Spot gold XAU= jumped to a record $1,877 an ounce and was last trading near $1,846.50, still on track for its biggest one-month rise in nearly 12 years in August and its biggest one-week gain since early 2009.

Rising commodity prices sapped some safety bids for gold after its gains of about 6 percent over the past five days.

"Right now, gold is inversely correlated with fear and nothing else. When stocks are down, gold's up," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.

"If we see the stock markets rally, I would not be surprised to see profit-taking starting to set in."

U.S. stocks at first see-sawed but turned lower by midday, while European stocks closed down as concerns about recession and regional bank funding in Europe dominated the market's mood and kept investors skittish going into the weekend.

"It's been a difficult week and confidence that this is just a soft patch or slowdown is declining every day," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York. "So I just think more investors are just concluding it's not a good idea to own stocks over the weekend."

U.S. stocks edged down on Hewlett-Packard (HPQ.N)'s weaker outlook, and its corporate shake-up added to a wealth of uncertainty for investors. Volatility remained high.

At the close, the Dow Jones industrial average .DJI was down 172.63 points, or 1.57 percent, at 10,817.95. The Standard & Poor's 500 Index .SPX was down 17.12 points, or 1.50 percent, at 1,123.53. The Nasdaq Composite Index .IXIC was down 38.59 points, or 1.62 percent, at 2,341.84.

MSCI's all-country world stock index .MIWD00000PUS was off 1.6 percent, while emerging markets stocks .MSCIEF fell 2.6 percent. European shares flirted with two-year lows.

The FTSEurofirst 300 .FTEU3 index of top European shares closed down 1.7 percent at 909.79.

"What I'm seeing right now is basically a crisis of confidence, more-so than an economic crisis or financial crisis necessarily at this stage," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.

The dollar fell as low as 75.941 yen JPY=EBS on trading platform EBS, but later pared most losses. It last traded at 76.500 yen, down 0.1 percent.

Currency traders were emboldened by a Wall Street Journal report citing Japan's top currency official as saying Japanese authorities do not plan to intervene in the market often.

The dollar's slump turned commodity markets, where crude oil prices rose about 2 percent at one point. ICE Brent October crude LCOc1 closed up $1.63 at $108.62 a barrel. U.S. crude oil CLc1 settled down 12 cents at $82.26 per barrel.

U.S. Treasury yields inched up from a low of 1.97 percent on Thursday as some investors took profits. [ID:nN1E77I09T]

The benchmark 10-year U.S. Treasury note US10YT=RR was up 1/32 of a point in price to yield 2.06 percent.

Yields have dropped about 73 basis points on the 10-year note in August as disappointing economic data, the Federal Reserve's low interest rate policy and jitters over rising bank funding costs have driven investors to safe-haven bonds.

Investors are awaiting Federal Reserve Chairman Ben Bernanke's speech on Aug. 26 in Jackson Hole, Wyoming, for hints on how policymakers plan to address the recent turmoil in financial markets.

Bill Gross, manager of the world's largest bond fund at Pacific Investment Management Co, said the rally in Treasury yields to 60-year lows reflects a high probability of a U.S. recession. [ID:nN1E77I0ZE] For more from the Interview, please click on insider.thomsonreuters.com/.

The U.S. dollar index .DXY slipped 0.4 percent to 73.976. The euro EUR= was up 0.4 percent at $1.4392. (Reporting by Rodrigo Campos, Gertrude Chavez-Dreyfuss and Karen Brettell in New York; Barbara Lewis and Jan Harvey in London; Harro ten Wolde in Frankfurt; Writing by Herbert Lash; Editing by Dan Grebler)

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Comments (1)
Moses2 wrote:
Hi ,how in the name of God did we arrive at this sorrowful position where Markets are allowed to…….Govern this World…….Instead of Governments?!. Is it time to…..Remove Speculators…..Impose severe Taxation on their Profits…….and Police Stock Exchange activities. Please let common sense prevail before it is too late……Moses2

Aug 19, 2011 7:22pm EDT  --  Report as abuse
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