Stocks tumble as economic outlook dims, gold up

NEW YORK: World stocks had their worst day in a year on Thursday as worries about a global slowdown intensified and investors piled more money into safe-haven assets like bonds and gold, which hit another record.

Officials moved to calm markets and ease volatility around the world, with the largest move coming from Tokyo, where the government spent an estimated 1 trillion yen ($13 billion) to stem the strength of its currency.

The intervention comes a day after an unexpected interest rate cut by Switzerland to weaken the franc.

Safe-haven assets like the Swiss franc, the yen and gold have spiked this week as investors fret governments around the world are planning spending cuts at a time of slowing global economic growth. Government moves are seen as just temporarily reversing the trend.

"They're trying to fight a futile battle," said Ankita Dudani, currency strategist at RBS. "It won't have a lasting impact so long as the euro zone crisis continues and the global (economic) outlook deteriorates."

The latest spate of economic data points to slowing demand in the US, while the euro zone grapples with the spread of its debt crisis to Spain and Italy, where borrowing costs have increased sharply.

The European Central Bank kept interest rates unchanged on Thursday, but traders said the central bank has been buying bonds of peripheral euro zone countries in an effort to keep rates lower.

German Bunds gained, while Italian and Spanish government bond yields rose in volatile trade on Thursday, after a euro zone monetary source said the European Central Bank was only planning to buy Portuguese and Irish bonds.

Markets were also unconvinced the ECB bond buying will be effective in stopping contagion and some were disappointed that Italian and Spanish bonds, whose yields climbed above 6 percent recently, were not the target of the purchases.

"It wasn't a unanimous decision to (buy bonds). Trichet looked really uncomfortable saying it," one trader said.

"The market obviously dismissed it pretty rapidly," another trader said.

Feeding on the market preference for safety bets, spot gold rose to a record of $1,681.67 per ounce, and benchmark 10-year US Treasury bonds rose 22/32 to yield 2.55 percent.

Stocks, energy prices and industrial metals continued their slide.

After less than an hour of trading in New York, the Dow Jones industrial average lost 204.43 points, or 1.72 percent, to 11,692.01. The S&P 500 dropped 25.32 points, or 2.01 percent, to 1,235.02. The Nasdaq Composite fell 47.15 points, or 1.75 percent, to 2,645.92.

The MSCI world equity index was down 2.4 percent on the day, its largest daily fall in a year, and hit a fresh 2011 low.

European stocks lost 1.9 percent.

Brent fell more than 2 percent and US crude lost 1.7 percent. Copper prices dropped 1.5 percent.

Copyright Reuters, 2011