May 11, 2009 / 3:33 AM / 9 years ago

European stocks, dollar fall on profit-taking, bank action

NEW YORK (Reuters) - U.S. and European stocks fell and oil slid on Monday as investors locked in profits after a strong run-up in riskier assets and major U.S. banks announced large stock offerings to repay government bailouts.

U.S. Treasuries and euro zone government debt rose as the outlook for stocks weakened, while the Federal Reserve bought $3.51 billion of longer-dated bonds and the Bank of England bought 3.4 billion pounds ($5.16 billion) of long-dated gilts.

Oil retreated to under $58 a barrel, pressured by weaker equity markets, a firmer dollar and profit-taking, all helping drive crude’s price from six-month highs reached last Friday.

The dollar rose, rebounding from a four-month low, as investors booked profits from recent gains. But interbank rates in London continued to fall as the overall outlook in the financial sector eases.

With government stress tests on big U.S. banks out of the way, investors sold banking shares to take gains on both sides of the Atlantic.

U.S. Bancorp (USB.N), Capital One (COF.N) and BB&T Corp (BBT.N) became the latest banks to seek additional capital by announcing stock offerings. Investors sold bank stocks to book profits ahead of the dilutive effects of the offerings.

U.S. Bancorp lost 5.8 percent, Capital One fell 11 percent and BB&T Corp shed 5.4 percent.

“Banks are going to need to raise capital, that’s weighing on the market. We climbed a wall of worry, bought the rumor, and now we’re selling the news,” said Marc Pado, market strategist at Cantor Fitzgerald in San Francisco.

At 1 p.m., the Dow Jones industrial average .DJI was down 128.64 points, or 1.50 percent, at 8,446.01. The Standard & Poor's 500 Index .SPX was down 16.55 points, or 1.78 percent, at 912.68. The Nasdaq Composite Index .IXIC was down 4.47 points, or 0.26 percent, at 1,734.53.

JPMorgan Chase & Co (JPM.N) fell 4.8 percent, and Bank of America Corp (BAC.N) slipped 3.8 percent after it said last week it would sell 1.25 billion shares to help meet what the U.S. government deemed was a $33.9 billion capital shortfall.

In Europe, Standard Chartered (STAN.L) fell 6.8 percent, Societe Generale (SOGN.PA) slid 3 percent and Nordea Bank (NDA.ST) lost 4.8 percent.

“What we have here is a bit of profit taking. Everything had got slightly over excited. Technically, equity markets have been overbought,” said Jim Wood-Smith, head of research at Williams de Broe. “I suppose we have got a bit of a reality check kicking in.”

Not all was gloomy in the battered financial sector. HSBC (HSBA.L), Europe’s biggest bank, gained 0.1 percent after it said first-quarter profits were “well ahead” of last year, swelled by record results in its investment banking unit.

Nasdaq losses were limited by reassuring comments from German business software maker SAP AG (SAPG.DE)(SAP.N), whose chief executive said the company expects “glimmers of hope” in the global economy in the second half of 2009.

Shares of SAP rival Oracle Corp ORCL.O rose 1.5 percent, among the top boosts to the Nasdaq, while SAP gained 2.85 percent in European trading.

Since reaching a 12-year low in early March, the Dow Jones industrial average is up about 32 percent and the S&P 500 about 39 percent.

The dollar rose and the yen posted broad gains. The U.S. and Japanese currencies often gain when risk aversion rises as they are perceived as safer places in times of stress.

Hopes that the worst of the economic slump is over pushed the dollar to multimonth lows earlier in the global session. But with the outlook still far from certain, investors were reluctant to push riskier assets even higher, analysts said.

“The dollar has strengthened ... as European equity markets and U.S. futures continue to trade lower,” said John Rivera, currency analyst at in New York.

The dollar rose against a basket of major currencies, with the U.S. Dollar Index .DXY up 0.30 percent at 82.691. Against the yen, the dollar was down 1.14 percent at 97.43.

    The euro fell 0.41 percent at $1.359.

    In government debt markets, some investors took the opportunity to snap up bargains after a sell-off in the bond market last week that left the market oversold.

    The benchmark 10-year U.S. Treasury note rose 21/32 in price to yield 3.21 percent. The 30-year U.S. Treasury bond gained 29/32 in price to yield 4.22 percent.

    Dollar funding costs among banks eased with the three-month rate sliding to a fresh low as hopes the embattled financial sector may be recovering continued to help mend the interbank money market.

    The three-month London interbank offered rate, or Libor, for dollars touched a record low of 0.92 percent, while equivalent euro and sterling rates also hit new troughs of 1.29625 percent and 1.41188 percent, respectively.

    The premium that Libor rates trade over a risk-free benchmark, the Overnight Index Swap rate (OIS), all eased on Monday, with the three-month dollar/OIS spread tightening to 73 basis points at one stage -- the narrowest since late July.

    U.S. light sweet crude oil fell 76 cents to $57.87 a barrel.

    Spot gold prices fell $4.05 t $912.00 an ounce.

    Asian shares rose to a seven-month high, with MSCI’s index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS up 0.7 percent after posting a 52 percent gain since their 2009 low hit in early March.

    Japan's Nikkei average .N225 rose 0.2 percent.

    Reporting by Edward Krudy, Wanfeng Zhou, Burton Frierson in New York and Joanne Frearson, Emelia Sithole-Matarise, Ian Chua and Jane Merriman in London; writing by Herbert Lash; Editing by Leslie Adler

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