* 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
By Herbert Lash
NEW YORK, Aug 19 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
"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
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
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)