June 28, 2010 / 9:29 PM / 9 years ago

GLOBAL MARKETS-Drop in oil prices pressures US stocks

* US stocks slip as drop in crude hurts energy shares

* Oil prices weaken on eased tropical storm concerns

* Euro falls broadly on funding tensions in Europe

By Manuela Badawy

NEW YORK, June 28 (Reuters) - U.S. stocks ended slightly lower in thin volume on Monday despite a better-than-expected report on consumer spending and oil prices declined as concerns eased about the impact on supply from a tropical storm in the Atlantic.

The euro fell broadly, pressured by bank funding concerns and caution ahead of more European debt sales this week.

Bankers voiced relief after world leaders abandoned a global bank levy and eased the timetable for new capital requirements at a G20 summit in Canada, which posed questions about the forum’s effectiveness. [ID:nLDE65R0I7]

Investors bought some global equities earlier in the day, especially bank shares, after members of the U.S. Congress hammered out a landmark financial regulation package on Friday, removing uncertainty, and the G20 dropped a 2012 deadline for more stringent risk-provisioning rules.

But the spotlight, however, remained on the consumer.

On Monday, the government said consumer spending rose moderately in May after being flat in April. Spending increased 0.2 percent in May after being flat in April, the Commerce Department said. That was a touch above market expectations for a gain of 0.1 percent. For details, see [ID:nN28253397].

Investors and analysts are waiting for further evidence that consumers, whose spending make up roughly two-thirds of gross domestic product, are reaching deeper into their pockets.

“What has been driving the market higher has been expectations that the good manufacturing recovery we’ve seen is going to take root and drive the whole economy forward,” said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

“But the big concern there is the consumer has to be the one to step to the plate and make that happen.”

U.S. consumer spending rose slightly more than expected in May even as savings touched their highest level in eight months. Consumer spending is being closely watched to gauge the strength of the economic recovery after a series of reports suggested growth is slackening. [ID:nN28253397]

A government report on Friday showed consumer spending, which normally accounts for 70 percent of U.S. economic activity, rose at a 3 percent pace in the January-March quarter — slower than the 3.5 percent the government had estimated last month.

The Dow Jones industrial average .DJI shed 5.29 points, or 0.05 percent, to end at 10,138.52. The Standard & Poor's 500 Index .SPX lost 2.19 points, or 0.20 percent, to finish at 1,074.57. The Nasdaq Composite Index .IXIC fell 2.83 points, or 0.13 percent, to close at 2,220.65.

About 7.08 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, the lowest volume since April 5 and below last year’s estimated daily average of 9.65 billion.

MSCI’s all-country world stock index .MIWD00000PUS ended 0.31 percent higher while more risk-sensitive emerging market counterpart .MSCIEF gained 0.45 percent.

European shares snapped four sessions of losses to close higher, led by banking shares, with sentiment lifted by upbeat U.S. consumer spending data. The pan-European FTSEurofirst 300 .FTEU3 index of top shares climbed 1.3 percent to end at 1,026.68 points.

Barclays (BARC.L), Deutsche Bank (DBKGn.DE) and BNP Paribas (BNPP.PA) gained 1.5 percent to 3.6 percent, benefiting from the G20’s decision to adopt a more flexible timetable for lenders to implement new capital rules.

Oil CLc1 fell to around $78 a barrel after earlier touching the highest in almost eight weeks, as concern eased about whether tropical storm Alex would disrupt supply in the Gulf of Mexico.

Over the weekend, Alex became the first named storm of the 2010 Atlantic hurricane season, which forecasters expect to be active. They said the storm could become a hurricane on Monday or Tuesday.

Spot gold XAU= retreated 1 percent to $1,240.45, down from $1,253.40 in Friday’s late New York trading and off Monday’s intraday peak at $1,262.45 as investors took some profits from bullion’s recent run.

EURO TUMBLES, BONDS RALLY

The euro EUR= slid under $1.23 as interbank euro lending rates hit their highest in almost seven months. The single currency's failure to rise above $1.24 and heavy selling in euro/sterling added to the downward momentum.

Banks must repay 442 billion euros ($545.5 billion) to the European Central Bank on Thursday, leaving a potential liquidity shortfall in the financial system of over 100 billion euros.

The Swiss franc hit a record high against the euro and an eight-week peak versus the U.S. dollar after Swiss National Bank board member Jean-Pierre Danthine was quoted in the l’agefi newspaper as saying deflationary risks have disappeared and Swiss exports have proven to be robust despite a stronger currency. [ID:nWEA7639].

The euro fell more than 1 percent to a record low 1.3329 franc EURCHF=, according to Reuters data. Danthine’s comments came after the SNB had backed off a pledge to fight excessive appreciation of the franc earlier this month.

Safe-haven U.S. Treasuries rose, pushing benchmark yields to one-year lows as speculators, emboldened by a recent batch of subdued economic data, pushed for a break of key technical resistance levels.

The benchmark 10-year U.S. Treasury note US10YT=RR was up 24/32, with the yield at 3.0227 percent. The 2-year U.S. Treasury note US2YT=RR was up 1/32, with the yield at 0.6289 percent. The 30-year U.S. Treasury bond US30YT=RR was up 34/32, with the yield at 4.0052 percent.

Bonds, investors’ choice during weak economic times, have benefited from poor data going back to May’s discouraging jobs report. The report added bullish momentum to a rally that began on worries over Europe’s fiscal woes. (Additional reporting by Wanfeng Zhou, Chuck Mikolajczak, Robert Gibbons and Frank Tang in New York; Editing by Jan Paschal)

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