* Global stock index falls, S&P 500 dips
* China's first domestic bond default creates jitters
* Signs of progress in diplomatic attempts to ease tensions
* Fannie, Freddie shares drop after U.S. Senate plan
By Caroline Valetkevitch
NEW YORK, March 12 Global stock indexes declined
for a fourth day and copper dipped to near four-year lows before
rebounding on Wednesday as increasing concern about China's
economic slowdown unnerved investors.
The concerns over China also pressured the Chilean peso and
other currencies closely linked to commodities markets, while
increasing investor appetite for safe-haven assets boosted U.S.
government bonds and gold.
The moves follow China's first domestic bond default, which
has raised concerns about a possible unraveling of the many loan
deals which have used the metal as collateral.
Chinese firms that have difficulty raising loans have often
bought copper as security for funds they borrow, but the 14
percent drop in copper's value this year is making banks more
wary about the practice.
Data, including China's recent weak export numbers, has
underscored worries that the world's second-largest economy is
"China has been a concern with its economic data which have
been on the softer side. We have been weak with commodity
currencies so far this week," said Dean Popplewell, chief
currency strategist at Oanda.
Copper on the London Metal Exchange slid to a
session low of $6,376.25 a tonne, its weakest level since July
2010, before recovering to end at $6,505, up 0.5 percent from
Tuesday's close. Three-month LME copper has shed more than 11
percent this year, including a 2.6 percent drop on Tuesday.
"Most people are still cautious so we can't expect a quick
rebound," said Andrey Kryuchenkov, analyst at VTB Capital. "On a
fundamental point of view we have to wait and see in the second
quarter how China stimulates its economy."
On Wall Street, the Dow Jones industrial average fell
28.47 points or 0.17 percent, to 16,322.78, the S&P 500
lost 2.28 points or 0.12 percent, to 1,865.35 and the Nasdaq
Composite added 9.206 points or 0.21 percent, to
Signs of progress in diplomatic attempts to ease tensions
surrounding Ukraine helped equities pare earlier declines.
U.S. Secretary of State John Kerry will meet with his
Russian counterpart, Sergei Lavrov, in London on Friday ahead of
a referendum Sunday on whether the Ukraine's Crimean peninsula
will join Russia.
"People are just kind of reassessing, they are looking at
that headline and thinking maybe it is not going to turn out to
be a disaster in Russia and Ukraine," said Ken Polcari, director
of the NYSE floor division at O'Neil Securities in New York.
Shares of Fannie Mae dropped 9.4 percent to $3.65
and shares of Freddie Mac were down 13.6 percent at
$3.48 after the leaders of the Senate Banking Committee on
Tuesday announced an agreement on legislation to wind down the
government-owned mortgage financiers.
The yield premiums on Fannie Mae and Freddie Mac bonds over
Treasuries shrank broadly on the view the Senate plan would
assure the government's guarantee of the companies' existing
debt. For example, the yield gap between the five-year Fannie
Mae note due February 2019 over five-year
Treasuries narrowed 0.005 percentage point to about
0.15 percentage point.
In Europe, shares closed down 1.0 percent, while an
index of global stocks was down 0.6 percent.
Miners and other stocks sensitive to global growth trends came
In the foreign exchange market, emerging market currencies
fell, partly on investor nervousness over China's economy.
The Chilean peso fell to near five-year lows on a
deepening sell-off in copper in Asian trading. Chile, a major
copper exporter, saw its currency last trade down 0.3 percent
versus the dollar at 537.32 pesos.
The Aussie was near flat after falling earlier in the
Oil prices declined, with Brent crude down 59 cents
at $107.96 and U.S. oil futures down $2.18 at $97.85.
MOVE TO SAFE-HAVEN AREAS
U.S. Treasuries prices rose in safe-haven bidding on worries
over the health of China's economy. They extended gains after a
strong 10-year Treasury note auction.
The 10-year U.S. Treasury note last traded up
10/32 in price to yield 2.726 percent, compared with a yield of
2.766 percent late on Tuesday. Bond yields move inversely to
Spot gold rose as much as 1.4 percent in earlier
trade to its highest level since Sept. 19 at $1,368.40 an ounce
and was last up 1.2 percent at $1,365.50.
CHINA IN FOCUS
Economists are concerned that recent moves by Beijing to
stamp out speculation on its rising currency and overly easy
lending may have overshot and will damage China's economy.
The worries are adding to broader strains on emerging
markets as they try to cope with shifts in global attitudes
while recovering economies such as the United States begin to
phase out the cheap money churned out in recent years.
Reuters reported that China's central bank is prepared to
loosen monetary policy if economic growth slows further by
cutting the amount of cash that banks must keep as reserves.
This was a positive sign for markets, but also a
possible indication of Beijing's growing nervousness.
Citing sources involved in internal policy discussions, the
report said an easing would happen if growth slips below 7.5
percent, and would be on top of money market operations and
currency intervention through state banks that traders say have
already loosened monetary conditions.