December 27, 2007 / 8:59 PM / 12 years ago

GLOBAL MARKETS-Gold, bonds rise on Bhutto killing, stocks fall

(Updates to late U.S. trading, changes byline)

By Anastasija Johnson

NEW YORK, Dec 27 (Reuters) - Gold and government bond prices rose and U.S. stocks slid on Thursday as fears of regional instability following the assassination of Pakistani opposition leader Benazir Bhutto triggered demand for safe-haven assets.

The shock of Bhutto’s death, combined with mostly weak U.S. economic data and potential additional write-offs by major investment banks, created a classic flight of capital to assets deemed as safe in times of geopolitical stress.

Investors fear that Bhutto’s death at a political rally in Rawalpindi could spark instability in the region and civil unrest within Pakistan. For more, see [ID:nISL309647].

Gold XAU= rose $2.20, or 0.27 percent, to $826.80 an ounce after hitting a one-month high of $830.05 earlier in the session.

The benchmark 10-year U.S. Treasury note US10YT=RR jumped 23/32 in price, pushing its yield down to 4.19 percent from 4.28 percent on Wednesday. Euro-zone government bond prices pared some of their losses after the Bhutto news and a stream of U.S. data, but finished slightly down on the day.

New orders for U.S. durable goods, which are long-lasting U.S.-made manufactured goods such as cars, refrigerators and washing machines, rose by a much less-than-expected 0.1 percent during November.

While an index of U.S. consumer confidence unexpectedly rose in December, investors remained focused on the negative news.

“Durable goods was weak and set the market off to a weak footing. But it was the unfortunate death of Benazir Bhutto in Pakistan that grabbed the headlines. That’s a global stability story,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.


In addition to economic and geopolitical news, a Goldman Sachs analyst warned that Citigroup Inc. (C.N), Merrill Lynch & Co MER.N and JPMorgan Chase & Co (JPM.N) may face larger fourth-quarter debt write-offs than previously expected.

The report pressured financial companies’ shares and weighed on the stock market overall.

The Dow Jones industrial average .DJI was down 185.01 points, or 1.37 percent, at 13,366.68. The Standard & Poor's 500 Index .SPX was down 19.59 points, or 1.31 percent, at 1,478.07. The Nasdaq Composite Index .IXIC was down 48.43 points, or 1.78 percent, at 2,675.98.

“People are starting to feel like we’re not going to be out of the woods with regard to financials quite yet,” said Jim Fehrenbach, head of Nasdaq trading at Piper Jaffray, in Minneapolis.

“The market hates uncertainty, and all of the write-offs are going to add to uncertainty,” he said.

While the Nasdaq snapped a six-day streak of gains, the dollar posted its fifth straight daily decline against the euro on Thursday.

The greenback fell as a weaker-than-expected durable goods report boosted the case for more Federal Reserve rate cuts next year. Lower U.S. interest rates make the dollar less attractive compared to other currencies.

The euro EUR= was up almost 1 percent at $1.4634, its highest level in nearly two weeks, from a previous session close of $1.4492. The euro also hit a record high at 73.39 pence EURGBP=.

The dollar was down 0.5 percent at 113.67 yen JPY=, reversing earlier gains that sent it to a seven-week high at 114.65 yen overnight, according to Reuters data. The dollar fell 1.1 percent to 1.1379 Swiss francs CHF=, a two-week low.


In New York, U.S. crude oil futures for February delivery CLG8 gained 65 cents, or 0.7 percent, to settle at $96.62 per barrel on the New York Mercantile Exchange. Earlier, NYMEX February crude soared to a one-month high at $97.79 a barrel, the highest level since Nov. 26.

The news from Pakistan and the dollar’s slide had already lifted oil prices early in the day, and the U.S. government inventory data released at mid-morning added to oil futures’ gains.

Analysts said oil could make a run toward record highs by the end of the week. This would put oil closer to the psychologically significant mark of $100 a barrel.

In overseas stock trading, the FTSEurofirst 300 index .FTEU3 inched up 0.07 percent, or 1.07 points, to end at 1,509.10. The pan-European index rode the coattails of energy shares, which got a lift from surging crude oil prices.

In Tokyo, the benchmark Nikkei average .N225 declined 0.6 percent, or 88.85 points, to close at 15,564.69. The Nikkei came under pressure as investors took profits on stocks such as Mitsui Fudosan (8801.T) that had recently rallied.

The Nikkei looked set to end 2007 down almost 10 percent, which would be its first annual decline in five years and give it the dubious distinction of being the world’s worst-performing major stock market. (Additional reporting by Vivianne Rodrigues, Chris Reese, Kristina Cooke and Steven C. Johnson, Robert Gibbons and Frank Tang in New York, Anshuman Daga in London and Aiko Hayashi in Tokyo; Editing by Jan Paschal)

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