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Stocks cave to credit woes as dollar digs lows

NEW YORK (Reuters) - Wall Street stocks slipped on Monday as investors remained worried about the possible fallout from the lingering credit crisis on the nation’s banks, while the dollar hit a new low against the euro before stabilizing.

A man stands in front of an electronic board at a stock exchange in Nanjing, east China's Jiangsu province, August 20, 2007. A leading Asia-Pacific stock index hit a record high on Monday as shares took their cue from gains on U.S. markets late last week. REUTERS/Sean Yong

Deutsche Bank DBKGn.DE became the latest source of concern after a source familiar with the matter said the firm's profit could be dented by as much as $2.4 billion as the effects of the credit crunch are fully felt -- far above some estimates.

This sparked speculation that last week’s aggressive half-percentage-point cut in the benchmark U.S. interest rate by the Federal Reserve was not enough to unclog credit markets.

“People aren’t convinced financials are out of the water yet,” said Todd Leone, head of listed trading at Cowen & Co. in New York. “The rate cut doesn’t solve all problems.”

Indeed, the Dow Jones industrial average DJI.N finished down 61 points, or 0.4 percent, weighed down further by a national United Auto Workers strike against General Motors Corp GM.N.

Overseas stocks, however, got a boost from a renewed willingness to embrace risk, with MSCI's main index for the sector .MIEF00000PUS hitting a record high, effectively recovering losses posted since the start of the credit squeeze.

Credit worries as well as looser monetary policy have been taking a hit on the U.S. dollar, which struck a new low of 1.4130 per euro earlier. The European currency was at $1.4085 in late New York trade.

Still, some analysts were cautiously positive that the Fed’s hefty interest rate cut last week could help grease the rusty wheels of corporate lending, allowing companies to raise capital following two difficult months.

“The door creaks slowly open in credit markets,” said Jeffrey Rosenberg, head of credit strategy research at Bank of America.

In the oil markets, refineries based in the Gulf of Mexico began restoring output shut by a storm, hurting energy shares as crude prices retreated further from a record high near $84 a barrel hit last week.

Weaker equities in turn were putting a floor under the bond market, where benchmark 10-year notes were flat and offering a yield of 4.63 percent.

The receding greenback also stoked inflation fears, however, sending gold prices through the roof. Bullion prices held steady at $738.60, having hit a 28-year high last week.

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