Equities sink worldwide on recession fears

NEW YORK (Reuters) - World stock markets fell sharply on Tuesday, with the Dow Jones industrials posting triple-digit losses, as worries deepened over the magnitude of the global economic slowdown following weak readings on the consumer front and further losses at several major banks.

Citigroup C.N, the largest U.S. bank, reported a record quarterly loss, with earnings-per-share losses nearly twice what was expected. It also slashed its dividend by 41 percent, while U.S. Bancorp, the sixth-largest U.S. bank, posted a 21 percent fall in fourth-quarter profit.

But global stock markets were under severe selling pressure after weak economic data which, in typical fashion, triggered safe-haven buying of U.S. Treasuries.

Sales at U.S. retailers fell unexpectedly in December, dropping 0.4 percent during the holiday month, and were revised lower for November than previously reported, according to a government report released Tuesday that implied costlier energy and slumping housing prices were taking a toll on consumers.

In addition, the ZEW Center for European Economic Research said its index of investor confidence in Germany, Europe’s largest economy, slumped to its lowest in 15 years.

“Investors continue to raise their concerns about the chances of a recession in the U.S. and heightened fears that perhaps global growth will fall sharply,” said Tom Sowanick, chief investment officer of Clearbrook Financial in Princeton, New Jersey.

Already, federal-fund futures are pricing in “not only a 50-basis point cut, but now a possible 75-basis-point rate cut, helping fuel fear in the markets”, added Sowanick.

On Wall Street, benchmark stock indexes were lower with the Dow Jones industrial average .DJI ending down 277.04 points, or 2.17 percent, at 12,501.11. The Standard & Poor's 500 Index .SPX shed 35.30 points, or 2.49 percent, at 1,380.95. The Nasdaq Composite Index .IXIC fell 60.71 points, or 2.45 percent, at 2,417.59.

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Adding to the Dow's decline, shares of plane maker Boeing BA.N fell about 4.67 percent to $77.86, after The Wall Street Journal reported the company may again delay the release of its 787 Dreamliner long-haul jet.

The FTSEurofirst 300 .FTEU3 index of top European shares settled down 2.57 percent, weakened among other things by Britain's largest retailer Tesco, which missed sales forecasts.

Meanwhile, Japan’s Nikkei ended below 14,000 for the first time in 26 months, losing 1 percent to close at 13,972.63.


But nervousness over the depth of the economic slowdown was exacerbated by Citigroup, the largest U.S. bank, which said it had fewer writedowns from the credit crisis than analysts had expected, although they amounted to a colossal $18.1 billion (9.2 billion pounds).

Also on Tuesday, financial services company State Street Corp reported lower fourth-quarter net income after it set aside millions for legal costs tied to mortgage securities losses.

Investors are watching bank earnings closely to see how hard the credit crisis has hit and to gauge the overall state of the industry.

Not coincidentally, U.S. Treasury debt prices moved higher as selling pressure on stocks sent investors seeking safe-haven government bonds.

The benchmark 10-year U.S. Treasury note was up 19/32 in price, with the yield at 3.697 percent, near their lowest levels in 3-1/2 years. The 2-year U.S. Treasury note was up 1/32, with the yield at 2.5329 percent. The 30-year U.S. Treasury bond was up 1-5/32, with the yield at 4.2925 percent.

In foreign exchange trade, the dollar edged up against a basket of major currencies, with the U.S. Dollar Index .DXY up 0.1 percent at 75.686 from a previous session close of 75.613.

Against the Japanese yen, the dollar eased to 107.02, down 1.1 percent from a previous session close of 108.96.

The euro was up 0.23 percent at $1.4832 from a previous session close of $1.4866.

In energy and commodities prices, U.S. light sweet crude oil fell $2.30, or 2.44 percent, to settle at $91.90 per barrel. Spot gold prices fell $9.60, or 1.06 percent, to $895.20. The Reuters/Jefferies CRB Index .CRB was down 4.65 points, or 1.26 percent, at 365.57.

Additional reporting by Jeremy Gaunt and Chris Reese; editing by Gary Crosse