Crude, stocks tumble on tapping of oil reserve

European shares closed at a three-month low and government debt prices on both sides of the Atlantic rallied after higher-than-expected weekly US jobless claims heightened worries the recovery.

The euro hit an all-time low against the Swiss franc and gold fell about 2.0 percent, set for its biggest daily fall in over a month, as anxiety about Greece and slower growth encouraged investors to seek safety.

The jobless claims indicated little improvement in the US labor market, while slower private-sector activity this month in China and Europe added to the picture of a global slowdown.

The International Energy Agency said it will release 60 million barrels of oil from strategic government stockpiles in a bid to push down crude prices and underpin the global economy. The announcement exacerbated investors' fears about global growth.

"Oil is selling off on the news of the reserve release, but the main problem here is the economic slowdown," said James Dailey, portfolio manager of TEAM Asset Strategy Funds in Harrisburg.

"The stock market has come to a realization that the slowdown is worse than expected, that we are not just in a soft patch but a long-term slowdown."

Brent crude futures for August fell $6.66 to $107.55 a barrel. US crude fell $4.50 to $90.91.

World stocks as measured by MSCI's all-country world stock index fell 1.8 percent, pushing the index into negative territory for the year.

On Wall Street, the Dow Jones industrial average was down 178.08 points, or 1.47 percent, at 11,931.59. The Standard & Poor's 500 Index was down 18.01 points, or 1.40 percent, at 1,269.13. The Nasdaq Composite Index was down 19.54 points, or 0.73 percent, at 2,649.65.

Comments by Greek opposition leader Antonis Samaras, who said the only way for Greece to repay its debt was for the government to change its current fiscal policies, added to investors' skittishness to take on risk.

Some analysts said the comments suggested Greece's parliament could reject austerity measures that are scheduled for a vote next week.

Capping the bleak outlook was the Federal Reserve's cutting its forecast for US growth on Wednesday. Remarks by Fed Chairman Ben Bernanke, who said some headwinds slowing the economy could linger, added to the gloom.

"Bernanke's cautious outlook and the persistent headwinds to the US economy ... that might linger until year-end, including concerns about Greece, have affected market sentiment," said David Watt, senior currency strategist at RBC Capital Markets in Toronto.

The euro fell 1.2 percent against the dollar to $1.4162, its lowest level in nearly a week, and dropped to a record low against the franc at 1.1847.

US Treasuries rose, with the benchmark 10-year note up 19/32 in price to yield 2.92 percent.

German bunds gained after signs of slowing euro zone growth raised fears over the ability of Greece and other countries to end their debt crises.

Benchmark Bund yields broke below 2.9 percent and Bund futures rallied more than a full point to 127.22.

"I think the rally in Bunds will continue, mainly due to the risk of Greece, the slowdown in the economy and the continued decrease in commodity prices, which is affecting inflationary expectations," said Alessandro Giansanti, an ING strategist.

Spot gold fell about 1.9 percent to $1,518.35 an ounce.

Copyright Reuters, 2011