GLOBAL MARKETS-Stocks fall as credit concerns re-emerge

GLOBAL MARKETS-Stocks fall as credit concerns re-emerge




(Updates with U.S. markets, changes byline, dateline, previous
LONDON)


By Karen Brettell


NEW YORK, Nov 1 (Reuters) - World stocks fell on Thursday
while credit markets worsened after Credit Suisse reported big
writedowns and an analyst sounded alarms about Citigroup Inc's
capital, prompting fears that banks will reveal more large
losses.


Weaker stock markets encouraged investors to back out of
riskier assets, pushing up the yen against the dollar and
lifting U.S. Treasury debt prices. Gold hit a 28-year high near
$800 an ounce before slipping along with weaker oil prices.


Credit Suisse (CSGN.VX: Quote, Profile, Research) reported a 2.2 billion Swiss franc
($1.9 billion) writedown on bad loans and mortgage investments
on Thursday and said its investment banking division barely
broke even. Its shares tumbled more than 4 percent to its
lowest level of the year.


Citigroup (C.N: Quote, Profile, Research) shares fell nearly 9 percent after a CIBC
World Markets analyst downgraded the largest U.S. bank to
"sector underperformer." The analyst said Citigroup would be
forced to sell assets, raise capital or cut its dividend to
improve its capital ratios.


CIBC also downgraded Bank of America (BAC.N: Quote, Profile, Research), saying it
sees a diminished revenue outlook for the bank.


"Let's face it, we got a pretty big downgrade on the banks
by CIBC. We know there's more to come there," said Tim Smalls,
head of U.S. stock trading at brokerage firm Execution LLC in
Greenwich, Connecticut.


The Dow Jones industrial average (.DJI: Quote, Profile, Research) was down 206.96
points, or 1.49 percent, at 13,723.05. The Standard & Poor's
500 Index (.SPX: Quote, Profile, Research) was down 23.76 points, or 1.53 percent, at
1,525.62. [url=javascript:goToPage(2);]Continued...[/url]

Fears that banks will be
forced to report more writedowns undermined sentiment in credit markets. The U.S. benchmark investment grade credit
derivatives index widened 5.5 basis points to 66.5 basis points, its widest
level since the new series of the index was launched on Sept. 20.



European credit spreads
were also sharply wider, with the investment grade iTraxx index widening 3
basis points to 40.5 basis points.



DOLLAR



The dollar extended losses
against the yen after a key U.S. manufacturing index was weaker-than-expected
in October.



The Institute for Supply
Management's manufacturing index came in at 50.9 for October, the lowest since
March. Economists were expecting an index of 51.5.



The data is a "little
bit of a mixed bag. The headline number came in weaker than expected at 50.9
but the employment component did witness an uptick," said George Davis,
chief technical strategist at RBC Capital Markets in Toronto. "On balance, given the
headline we should see a marginal softening of the dollar."



Falling stocks also
prompted investors to sell the dollar and buy the yen.



"S&P is down
further and this is hurting the carry trade. Dollar/yen and other yen crosses
are getting hit hard," said a trader with Forex.com in Bedminster, New Jersey.



Carry-trade investors use
the low-yielding yen to buy higher-yielding currencies and other assets such as
the Australian and New Zealand dollars.







The dollar was down 0.38
percent against the yen <JPY=> at 114.85 from a previous session close of
115.29. The euro <EUR=> was down 0.41 percent against the dollar at
$1.4421 from a previous session close of $1.4480.



U.S. Treasuries also
extended their earlier gains on the manufacturing data. The benchmark 10-year
U.S. Treasury note <US10YT=RR> was up 24/32, with the yield at 4.3769
percent and the 2-year U.S. Treasury note <US2YT=RR> was up 9/32. The
two-year yield fell to 3.8055 percent and was poised for its biggest one-day
drop since August 2004.



In energy and commodities
prices, U.S. light sweet crude oil (CLc1: Quote, Profile, Research) fell $2.02, or 2.14 percent, to $92.51 per
barrel, as traders took profits from the recent streak to highs above $96 a
barrel. U.S. gold (GCZ7: Quote, Profile, Research) rose as high as $800.80 an ounce before
falling $2.90 to $792.00 as oil prices fell and the dollar gained slightly
against the euro.



Spot gold prices
<XAU=> fell $8.60, or 1.08 percent, to $787.20 after nearing the $800
mark. (Additional reporting by Jennifer Coogan, Gertrude Chavez-Dreyfus,
Richard Leong and John Parry in New York)