LONDON (Reuters) - World stocks hit 8-week lows while the yen surged to 18-month peaks versus the dollar on Monday as fears about credit-related losses at financial firms prompted investors to reduce bets on risky trades.
Fresh concerns about further losses linked to the fallout in the U.S. subprime mortgage sector deepened over the weekend after Britain’s Sunday Telegraph newspaper reported HSBC (HSBA.L) would take a new $1 billion hit to results this week.
The report followed warnings on Friday by Bank of America Corp (BAC.N) and JP Morgan Chase & Co (JPM.N) on fourth-quarter results and the revelation by Wachovia Corp WB.N of a potential $1.7 billion loss on mortgage-related debt.
The credit crunch, which started in August, has worried consumers and threatened to weaken corporate profits and derail growth in the world’s largest economy.
Fears of more misery in the financial sector also triggered broad unwinding of carry trades, where investors had sold the low-yielding yen to invest in higher-yielding assets.
“Risk reduction trades are over-riding fundamentals ... All the talk about subprime, that is clearly the driver,” said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt.
The FTSEurofirst 300 index .FTEU3 was down a quarter percent, hitting an eight-week low. MSCI main world equity index .MIWD00000PUS also fell to its lowest since mid-September, down 0.7 percent on the day.
The MSCI index has eroded this year’s gains after hitting an all-time high earlier this month but is up around 9 percent since January.
The dollar fell as low as 109.86 yen, while it kept some distance from record lows against the euro and against a basket of major currencies .DXY.
Weakness in the dollar and higher volatility in major currencies is expected to be a focal point when finance ministers and central bank governors from the Group of 20 economies meet in Cape Town at the weekend.
The December Bund future FGBLZ7 was down 10 ticks.
Last week, the trade-weighted dollar index, the broader U.S. stock market .SPX and two-year U.S. yields fell, marking only the second time in the last two years for all three instruments to move in tandem for two consecutive weeks, according to JP Morgan. The last time was in late July just before the credit crisis began.
The iTraxx Crossover index, the most widely watched indicator for European credit market sentiment, was 6 basis points wider at 382 bps.
Emerging sovereign spreads 11EMJ widened 3 bps while emerging stocks .MSCIEF fell more than 2 percent.
U.S. light crude CLc1 fell from last week’s record high near $99 after Saudi Arabia said on Sunday OPEC would discuss boosting oil output at an upcoming meting to cool surging prices.
Gold also fell in tandem with oil to $818.40 an ounce, coming off last week’s 28-year peak.
Reporting by Natsuko Waki; editing by Ruth Pitchford