Europe woes, U.S. earnings season hit shares, euro

NEW YORK Tue Oct 9, 2012 4:27pm EDT

1 of 2. Traders work at their desks at Frankfurt's stock exchange August 8, 2011.

Credit: Reuters/Pawel Kopczynski

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NEW YORK (Reuters) - Global equities and the euro fell on Tuesday on concerns over the U.S. earnings outlook and a stark warning from the IMF about global growth, while oil jumped on escalating tensions in the Middle East.

Government debt prices rose in a bid for safety as anxiety among investors picked up on the International Monetary Fund's gloomier view of the global economy.

The uncertain outlook for Spain and Greece added to concerns. Tens of thousands of angry Greek protesters filled the streets of Athens during a visit by German Chancellor Angela Merkel, who offered sympathy but no promise of further aid on her first visit since the euro crisis erupted three years ago.

Spanish bond yields rose after euro zone finance ministers said on Monday that Madrid did not need a bailout yet, adding to uncertainty about when Spain will ask for aid, widely seen as inevitable.

Equity investors were also in a cautious mood as they awaited the kick-off of the U.S. quarterly earnings season, which started in earnest after the market close with the release of results by aluminum maker Alcoa (AA.N).

Alcoa reported a third-quarter net loss as the price of the metal slumped and demand remained weak, but its stock rose 2.6 percent in after-hours trade.

"The tone of the market still feels greatly uncertain as we head into earnings season in the United States, and indeed the market is now focusing its attention that way as it seeks out bad news wherever it can find it," said Brad Bechtel, managing director at Faros Trading in Stamford, Connecticut.

Losses in technology shares led Wall Street lower after brokerage downgrades of Intel (INTC.O) and other major companies stoked worries about third-quarter U.S. earnings.

Shares of Intel, the world's largest semiconductor maker, lost 2.7 percent to $21.90 after negative reports by at least two brokerages. Robert W. Baird & Co cut its price target, citing weak demand for notebooks.

The Dow Jones industrial average .DJI closed down 110.12 points, or 0.81 percent, at 13,473.53. The Standard & Poor's 500 Index .SPX fell 14.40 points, or 0.99 percent, at 1,441.48. The Nasdaq Composite Index .IXIC slid 47.33 points, or 1.52 percent, at 3,065.02.

In Europe, the FTSEurofirst 300 index .FTEU3 of top company shares fell 0.5 percent to close at 1,095.95, while MSCI's all-country world equity index .MIWD00000PUS slid 0.9 percent.

Disappointing corporate results could also weigh on the euro. Stocks and the euro move together 90 percent of the time, Reuters data showed, with the euro rising as stocks gain.

The euro fell 0.7 percent to $1.2875. The U.S. Dollar Index .DXY rose 0.57 percent at 79.994.

The benchmark 10-year U.S. Treasury note was up 5/32 in price to yield 1.7132 percent.

Spanish bond yields rose after investors trimmed expectations of a swift solution to Madrid's debt problems as politicians in Spain resisted seeking a bailout.

Yields on Spanish 10-year government bonds were 10 basis points higher on the day at 5.83 percent, but well below the July peak of 7.8 percent.

Concern about Greece also resurfaced after European Central Bank chief Mario Draghi told a European Parliament committee that Greece has made progress on reforming its economy but has more work to do.

"Some things have improved in the last two or three months, but I think the road ahead is still long and it's uphill," Draghi said.

The IMF, one of Greece's main lenders, said in a report that Athens would miss the five-year debt reduction target that is a condition for the country's 130-billion-euro bailout.

The IMF outlook "was adding to the downbeat sentiment. It was a confirmation of slow growth globally," said Gennadiy Goldberg, an interest rate strategist with TD Securities in New York. "That's why we are settling back into this trading range."

The threat of supply disruption in a tense Middle East countered concerns about slower growth and resulting sluggish demand for oil.

NATO said it had drawn up plans to defend Turkey if necessary against any further spillover of violence from Syria, where rebels and government forces are fighting for control.

Brent futures settled up $2.68 to $114.50 a barrel. U.S. crude gained $3.06 to settle at $92.39, also rebounding after two consecutive sessions of declines.

U.S. COMEX gold futures for December delivery settled down $10.70 at $1,765 an ounce.

Copper prices steadied on expectations of further pro-growth policies from top consumer China, but later slipped as risk assets sold off. Benchmark copper on the London Metal Exchange closed at $8,145 a tonne.

(Additional reporting by Richard Hubbard in London; Editing by James Dalgleish)

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