World Stocks bloodied as yen marches higher
Pastor Dale Morgan
Saturday March 3, 6:28 AM Reuters
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World Stocks bloodied as yen marches higher*
By Steven C. Johnson
NEW YORK (Reuters) - U.S. stocks plunged on Friday, following European
and Asian markets lower as diminished investor appetite for risk capped
one of the most punishing weeks for global equities in years.
The decline was guided by the rapidly advancing Japanese yen, which hit
an 11-week high against the dollar and chalked up its biggest weekly
gain over the greenback in 14 months.
U.S. Treasury debt prices rose as investors embraced the relative safety
of government bonds, leaving equity investors licking the wounds
inflicted by Wall Street's worst weekly decline since January 2003.
"Traders don't want to be long anything except for the most secure
assets," said Ernie Ankrim, chief investment strategist at Russell
Investment Group in Tacoma, Washington.
Analysts said the yen's rise served as the proverbial canary in the coal
mine for complacent financial markets, with investors viewing it as the
unwinding of global carry trades.
That investment strategy, a favourite among hedge funds, featured
borrowing yen at low Japanese interest rates and buying assets offering
higher returns -- and higher risk.
As the yen gained, the cost of covering those leveraged bets has
increased quickly, and investors in the trade were forced this week to
sell everything from U.S. and international stocks to emerging market
bonds to close their yen positions.
"We're seeing a continuation of carry trade unwinding, and I'd say it's
too early to jump back in," said Alan Ruskin, chief international
strategist at RBS Greenwich Capital.
In volatile trade, the Dow Jones industrial average ended down 120.24
points, or 0.98 percent, at 12,114.10.
On Tuesday, the day the rout began, Wall Street's blue chips suffered
their biggest daily point loss since the September 11, 2001, attacks.
The Dow ended the week down 4.22 percent.
The Standard & Poor's 500 index ended down 16.00 points, or 1.14
percent, at 1,387.17 and closed the week 4.42 percent lower, while the
Nasdaq composite index ended down 36.21 points, or 1.51 percent, at
2,368.00. It fell 5.85 percent this week.
A Reuters/University of Michigan survey that showed U.S. consumer
sentiment in February fell to its lowest level in five months also
rattled investors and added to growing unease about the health of the
U.S. economy.
YEN GAINS
The yen was up 0.7 percent at 116.84 per dollar, while the euro was
nearly unchanged at $1.3190.
Earlier, the yen hit an 11-week high of 116.43 per dollar despite
remarks from St. Louis Federal Reserve President William Poole, who said
he saw nothing disruptive in carry trades.
"It doesn't seem to matter what an official says as the market is
sensitive to any mention of carry at the moment." said Jay Meisler,
principal of Global-view.com in New York.
While stocks, risky corporate bonds and emerging market assets have
suffered as the trade unwinds and volatility has spiked, government
bonds have benefited from a flight-to-safety bid.
Worries about rising home loan defaults among U.S. high-risk -- or
subprime -- borrowers has also drawn a steady stream of investors to
Treasuries.
The benchmark 10-year U.S. Treasury note was up 11/32, with the yield at
4.51 percent, against 4.55 percent late on Thursday.
As measured by the decline in yield, the two-year note had its best week
in 18 months, rising 4/32 to a yield of 4.55 percent, compared with 4.62
percent Thursday.
Anxiety about U.S. growth helped push crude oil futures down 36 cents,
or 0.6 percent, to settle at $61.64 per barrel.
Gold for April delivery fell $21.00 to settle at $644.10 an ounce as
funds liquidated positions amid worries of a further equity market sell-off.
EUROPEAN, ASIAN EQUITES UNDER WATER
The pan-European FTSEurofirst 300 index ended down 0.4 percent at
1,463.30 points on Friday, posting its worst weekly performance since
September 2001.
Asian stock markets ended mixed but mainly lower, with Tokyo's Nikkei
average erasing its gains for the year to close down 1.35 percent at
17,217.9.
But China's composite share index, which sparked the rout on Tuesday
with a nearly 9 percent dive, moved up 1.2 percent and Hong Kong's Hang
Seng rose 0.3 percent.
(Additional reporting by Dan Burns, Vivianne Rodrigues, Jennifer Coogan,
Ellis Mnyandu, Burton Frierson and Gene Ramos in New York, Marie Maitre
in Paris and Jeremy Gaunt and Gill Tudor in London)