GLOBAL MARKETS-Stocks capped by growth worry, oil at 9-month high

Wed Feb 22, 2012 3:58pm EST

* World stocks lower, while bond prices rise

* Euro zone PMI data raises question over economic recovery

* Brent crude oil prices jump on Iran supply worries

By Caroline Valetkevitch

NEW YORK, Feb 22 (Reuters) - Global stocks eased and the euro was little changed on Wednesday after data showed the euro zone may be sliding toward recession and China's new export orders shrank in February.

Brent crude oil prices climbed for a third straight day, hitting their highest since May 2, as worries that Iran might interrupt supply outweighed concerns about the health of the global economy.

A new wave of worries over Greece, after the initial relief following Tuesday's approval of a second bailout package, added to the uncertain tone for stocks and the euro and caused nervous investors to step back into low-risk U.S. government debt.

Although approval of the 130 billion euro rescue deal meant Greece has probably avoided imminent default, many analysts doubt its finances can be put on a sustainable footing.

"While a Greek bailout has been reached over the long weekend, the process of implementation and final hurdles still pose significant risks," said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut.

"We're also reminded that even with a smooth execution of the deal, it does very little to address the longer-term competitive challenges facing the Greek economy," Lyngen added.

Global stocks, as measured by the MSCI global equity index , were down 0.3 percent, while U.S. stocks edged down slightly. The FTSEurofirst index of top European companies ended down 0.8 percent.

The Dow Jones industrial average was down 13.21 points, or 0.10 percent, at 12,952.48. The Standard & Poor's 500 Index was down 2.69 points, or 0.20 percent, at 1,359.52. The Nasdaq Composite Index was down 10.01 points, or 0.34 percent, at 2,938.56.

Financial stocks led losses on both sides of the Atlantic on concerns over the possible impact from the euro zone debt crisis. Shares of Greek banks listed in Athens slumped on concerns they will have to raise more capital than expected. EFG Eurobank, Alpha Bank and National Bank of Greece lost from 12.7 to 17.1 percent. On Wall Street, the S&P financial index was down 1.1 percent and the KBW bank index fell 1.9 percent.

In the U.S. Treasury market, the benchmark 10-year note was last up 14/32 in price, with the yield at 2.010 percent.

The euro was nearly flat against the dollar as optimism about Greece's bailout deal gave way to concerns about how the terms will be implemented. The yen skidded to a seven-month low against the dollar, with more weakness expected as recent monetary easing in Japan put pressure on the currency.

The February reading on the flash euro zone services Purchasing Manager's Index (PMI) of 49.7 was below forecasts and under the 50 level that signifies contraction.

The reading, along with signs of weakness in a similar index for Germany, Europe's biggest economy, clouded optimism about the resilience of the European economy to the region's crisis. However, a separate survey showed France's manufacturing sector managed a marginal but unexpected return to growth in the month.

A rise in factory orders across the 17-nation euro area in December, led by an increase in new orders from Italian factories, tempered the worries, although overall industrial orders in the region were down 1.7 percent in December compared with a year ago.

CHINA FEELS EURO ZONE EFFECT

China's new export orders shrank in February, the most in eight months, a preliminary HSBC business survey showed, defying expectations of a pick-up and giving a worrying sign of the impact of the euro area debt crisis.

HSBC's February flash PMI, which showed the overall manufacturing sector shrinking for the fourth-straight month, suggested overseas demand was sliding even further.

China's economic growth is widely seen slowing in January to March for a fifth consecutive quarter, prompting growing hopes of further policy easing measures from China's central bank.

Despite the worries about the global economic outlook, Brent crude oil climbed on worries that Iran's confrontation with the West would heat up further after talks with U.N. nuclear inspectors failed.

ICE Brent crude for April delivery rose to settle at $122.90 a barrel, gaining $1.24, or 1.02 percent, the highest for front-month Brent since May 2, 2011, when prices ended at $125.12

"We've got a tug of war here between Iran tensions and slowing global economic growth," said Mark Waggoner, president of Excel Futures in Bend, Oregon.

In the metals market, gold prices rose to a three-month high as technical buying helped the metal reverse initial losses.

Spot gold was up 0.6 percent at $1,769.49 an ounce, having earlier hit a three-month high of $1,771.80 an ounce.

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