Global stocks fall, bonds jump after U.S. bank plan

NEW YORK (Reuters) - Stocks fell and government bonds jumped on Tuesday as investors worried the revamped plan unveiled by the U.S. Treasury to shore up the banking system might not be enough to stem the worsening financial crisis.

An investor looks at an electronic board showing stock information at a brokerage house in Wuhan, Hubei province February 9, 2009. Chinese stocks rose in massive turnover on Monday, extending a week-old rally that began when data implied economic growth might bottom out this quarter. But there was heavy profit-taking in the afternoon as some analysts suggested the rally was not sustainable in the longer term. REUTERS/Stringer

Disappointment with the long-awaited plan sent investors into the shelter of the dollar and the yen, while oil prices slipped and gold climbed above $900 per ounce.

U.S. Treasury Secretary Timothy Geithner rolled out the renamed “Financial Stability Plan” to cleanse $500 billion in spoiled assets from banks’ books and support $1 trillion in new lending through an expanded Federal Reserve program.

The plan will also devote $50 billion in federal rescue funds to try to stem home foreclosures and soften the crushing impact of the housing crisis afflicting the world’s largest economy.

“The market has been looking forward for a long time on clear and definite steps from policy-makers on how to clean up these toxic assets. The statement does not give much away and has now disappointed as markets were waiting for the detail,” said Mike Lenhoff, strategist at Brewin Dolphin, in London.

“It was looking for positive guidance and, if it does not find it, it is going to turn the thumbs down instead of up.”

Financial stocks led declines in equity indexes worldwide, with the S&P financial index .GSPF off more than 7 percent in midday trading in New York and the Dow Jones industrial average .DJI down 3.5 percent.

European shares closed lower. The pan-European FTSEurofirst 300 .FTEU3 index of top shares ended down 2.9 percent at 805.94 points also stirred by mixed reaction to a roughly $7 billion fourth-quarter net loss from Swiss bank UBS UBSN.VX.

Earlier, Japan's Nikkei stock average .N225 slipped 0.3 percent to close at 7,945.94 and the broader Topix .TOPX fell 0.1 percent to end at 778.10.

As investors turned away from riskier assets such as stocks, demand for U.S. Treasuries rose.

“Given all this time they (U.S. policy-makers) still don’t have anything very specific nailed down,” said Carl Lantz, U.S. interest rate strategist at Credit Suisse in New York, adding “that’s going to be a disappointment for risky assets and it’s good for the bond market.”

Benchmark 10-year Treasury notes were trading 1-1/32 higher in price for a yield of 2.87 percent, from 2.99 percent late on Monday.

Euro-zone government bond futures extended gains drawing a safety bid in reaction to the U.S. Treasury Department’s plan.

March Bund futures were up 68 ticks on the day at 122.38, having traded around 122.12 before details of the plan.

Two-year yields were flat at 1.45 percent while the 10-year Bund yield was four basis points down on the day at 3.365 percent.


The dollar and the yen climbed as investors sought shelter in both currencies on concerns about Washington’s rescue plan.

The low-yielding dollar and yen are typically viewed as safe-haven currencies with low volatility. When stocks drop and the risk barometer shoots up, investors repatriate funds and close out losing risky trades funded by these two currencies.

“Investors are skeptical about the effectiveness of this investment fund,” said Kathy Lien, director of FX research at GFT Forex in New York. “We’re still seeing risk aversion ... and that’s sending investors back into the safety of the U.S. dollar and the Japanese yen.”

The dollar fell 0.8 percent versus the yen to 90.78 while the euro was 0.5 percent lower against the dollar at


Earlier, the euro slipped after Japan’s Nikkei business daily quoted the Russian Association of Regional Banks as saying the industry group had submitted a proposal to the government to postpone loan repayments of up to $400 billion in corporate debt owed to foreign banks.

Russia denied the media report but investors were wary of taking large positions ahead of the bank plan.

Concerns about the Treasury Department plan and worries about weak fuel demand sent oil prices lower. U.S. crude was down 1 percent at $39.12 per barrel, off highs of $41.80 early in the session.

Gold prices topped $900 per ounce, climbing more than 2 percent to $919.00 following the Treasury plan.

Additional reporting by Glenn Sommerville in Washington, Gertrude Chavez-Dreyfuss in New York and Joanne Frearson in London; Editing by Tom Hals