Stocks halt rally and dollar falls on growth fears
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NEW YORK (Reuters) - U.S. and European stocks slipped and the dollar fell to multi-month lows against the euro and the yen on Tuesday as disappointing corporate earnings and U.S. economic data added to fears about the global recovery.
Treasuries rallied as investors sought safety, sending yields on the two-year notes to an all-time low, although analysts said a decline in stock prices was expected after a rally on Monday lifted them to a three-month high.
A Wall Street Journal report that the Federal Reserve was considering buying more bonds to prop up the economy further boosted Treasuries prices.
Oil prices rose as the weaker dollar made it cheaper for investors using other currencies to buy the commodity, although commodity prices fell in general due to growth concerns. Gold gained as China announced moves to allow greater freedom in domestic trading of the metal.
Worries about the sustainability of the global recovery increased after Dow Chemical Co and Procter & Gamble reported quarterly results that missed expectations. Strong corporate results had been the main reason behind the recent stock rally.
Economic data continued to disappoint. New orders received by U.S. factories fell more than expected in June, while sales of previously owned U.S. homes fell to a record low in June.
"People are beginning to accept that the U.S. economy is coming back to earth and, as far as growth goes, may be playing second fiddle to other economies," said Andrew Wilkinson, analyst at Interactive Brokers Group in Greenwich, Connecticut. "That's driven bond yields down and is sapping the dollar."
Global stocks measured by the MSCI All-Country World Index .MIWD00000PUS still edged up 0.13 percent after closing on Monday at their highest level in nearly three months.
Key U.S. and European stock indexes dipped.
The FTSEurofirst 300 index .FTEU3 of top European shares closed down 0.01 percent at 1,070.79 points as banks and miners gave back some of Monday's sharp gains.
Miners Anglo American (AAL.L), BHP Billiton (BLT.L) and Kazakhmys (KAZ.L) off 0.7 to 1.3 percent, as metals prices retreated across the board.
"A bout of weakness in the U.S. in reaction to worse-than-expected home sales and factory orders data unsettled traders, but these short-term dips are still tempting in some buyers," said Will Hedden, sales trader at IG Index in London.
The Dow Jones industrial average .DJI lost 29.52 points, or 0.28 percent, to 10,644.86, while the Standard & Poor's 500 Index .SPX dropped 4.43 points, or 0.39 percent, to 1,121.43. The Nasdaq Composite Index .IXIC fell 9.27 points, or 0.40 percent, to 2,286.09.
Shares of Procter & Gamble (PG.N) and Dow Chemical (DOW.N) tumbled after both companies reported profits that missed Wall Street's estimates. P&G was the biggest drag on the Dow index, falling 3.65 percent to $59.79, while Dow shed 9.6 percent to $25.60.
U.S. stocks had closed on Monday at their highest levels in 10 weeks.
The market "needs to pull back anyway," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York. "But we did make a new high yesterday and took out resistance, so the uptrend is very much alive."
The S&P Consumer Discretionary Sector .GSPD fell 1.3 percent after data showed consumer spending and incomes were unexpectedly flat in June while personal savings rose to the highest level in a year.
"This shows that spending is slowing down and it's making us back off the retail space," said Tom Nyheim, portfolio manager at Christiana Bank & Trust Co in Greenville, Delaware.
"It doesn't mean that we're going to slide into a double-dip, but it does mean we should expect growth to be slower" than previously thought, he said.
DOLLAR WEAKEN, TREASURIES RALLY
The dollar plunged in tandem with short-dated U.S. Treasuries yields due to fears that the U.S. economic recovery was faltering.
The greenback slid against a basket of major currencies, with the U.S. Dollar Index .DXY down 0.42 percent. The index fell below its 200-day moving average for the first time since January, which analysts said may signal more dollar selling ahead.
The euro hit a three-month high of $1.3261 against the dollar. It pared gains later, but was still up 0.36 percent at
$1.3227.
The dollar also fell below 86 yen, its weakest showing against the Japanese currency since November.
"Evidence of near paralysis in the U.S. economy has pushed U.S. yields consistently lower, and until yields bottom, the dollar will remain under pressure," said Kathy Lien, director of research at GFT Forex in New York.
Benchmark 10-year Treasury notes were trading 18/32 higher in price to yield 2.9 percent, down from 2.97 percent late Monday.
The two-year note was 2/32 higher in price to yield 0.53 percent, an all time low, from Monday's close of 0.57 percent.
Also boosting Treasuries gains was an unsourced report by The Wall Street Journal that the Federal Reserve would consider buying new mortgage or Treasury bonds using the cash it receives when its mortgage-bond holdings mature.
U.S. crude oil prices rose 97 cents to $82.31 per barrel as the dollar weakened.
Spot gold prices climbed 0.59 percent, to $1,187.80, after the Chinese central bank said in a statement it will allow its banks to import and export more gold as part of a program to push forward the development of the country's market in the precious metal.
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