Stocks ease on growth concerns, oil at 9-month high

NEW YORK Wed Feb 22, 2012 4:45pm EST

Traders work at their desks at the Frankfurt stock exchange February 1, 2012.  REUTERS/Alex Domanski

Traders work at their desks at the Frankfurt stock exchange February 1, 2012.

Credit: Reuters/Alex Domanski

NEW YORK (Reuters) - Global stocks eased and prices of safe-haven bonds rose 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 level 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 helped drive nervous investors 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.

U.S. stocks ended lower while global stocks, as measured by the MSCI global equity index .MIWD00000PUS, were down 0.4 percent. The FTSEurofirst index of top European companies .FTEU3 ended down 0.8 percent.

The Dow Jones industrial average .DJI fell 27.02 points, or 0.21 percent, to settle at 12,938.67. The Standard & Poor's 500 Index .SPX was down 4.55 points, or 0.33 percent, at 1,357.66. The Nasdaq Composite Index .IXIC was down 15.40 points, or 0.52 percent, at 2,933.17.

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.

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 EFGr.AT, Alpha Bank (ACBr.AT) and National Bank of Greece (NBGr.AT) lost from 12.7 to 17.1 percent. On Wall Street, the S&P financial index .GSPF was down 1.3 percent and the KBW bank index .BKX fell 2 percent.

Investors feared the weak euro zone growth would hamper countries dealing with heavy debt loads and banks exposed to those debts.

"We're very concerned around the markedly deteriorating credit fundamentals in Europe," said Steven Baffico, chief executive officer at Four Wood Capital Partners in New York.

In the U.S. Treasury market, the benchmark 10-year note was up 16/32 in price, with the yield at 2.00 percent.

The euro was last up 0.1 percent at $1.32482, after touching an almost two-week high of $1.3293 on Tuesday. Optimism about Greece's bailout deal gave way to concerns about how the terms will be implemented.

The yen, however, skidded to a seven-month low against the dollar, with more weakness expected as recent monetary easing in Japan put pressure on the currency.

CHINA FEELS EURO ZONE EFFECT

China's new export orders registered their biggest decline in eight months in February, 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 a fourth straight month, suggested overseas demand was sliding even further.

China's economic growth is widely seen slowing for a fifth consecutive quarter in the January to March period, 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 jumped to a three-month high, reversing early losses after bullish technical factors triggered fund buying, and platinum prices hit their highest in five months on supply worries.

Spot gold was up 1.1 percent at $1,777.98 an ounce, having earlier hit a three-month high of $1,781.40.

(Reporting by Caroline Valetkevitch; additional reporting by Richard Hubbard in London; and Rodrigo Campos, Gene Ramos, Frank Tang and Chris Reese in New York; Editing by Kenneth Barry, Chizu Nomiyama, Leslie Adler)

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