Debts & Loans

The U.S. dollar and government debt prices rose on Monday after dismal data pointing to a recession in U.S. and European manufacturing prompted a flight to safety, and defensive moves lifted stock markets.

Economic news dominated markets. European banks warned of more big write-downs and reported a sharp fall in profit as the credit crisis continues to slam consumers and businesses, prompting more lenders to tap government funds or seek state rescues.

Oil fell below $65 a barrel as traders shifted their focus back to slowing energy demand in light of the weak economic data. The dollar gained against the euro as the data prompted some investors to buy the currency as a safe haven.

"It's counterintuitive, but this may help support the dollar even as it undermines confidence in the U.S. economy," said Michael Woolfolk, senior currency strategist Bank of New York-Mellon, about the report on manufacturing.

"The dollar has been the beneficiary in this global financial crisis," he said.

The European Commission said the euro zone is already in a recession and that the economy will come to a virtual standstill next year. It called for coordinated European Union action to support growth.

Manufacturing slid into a recession on both sides of the Atlantic in October, with output at record lows in the euro zone and U.S. factory activity slumping to a 26-year low.

"Pretty grim. It means we're in a recession, it's as simple as that," Robert MacIntosh, chief economist at Eaton Vance Corp in Boston, said about the U.S. factory data.

While the Institute for Supply Management's index of U.S. manufacturing activity fell more sharply than expected to 38.9, MacIntosh said it did not change the assumptions of investors.

"I don't think it adds anything that already wasn't in the thought process of investors," he said.

European and most U.S. equity markets rose, lifted by defensive stocks and signs of further thawing in the credit markets.Rates that banks charge for lending dollars and euros to each other fell, extending last week's decline in response to ongoing central bank measures to supply financial institutions with cash.
Shortly after 1 p.m., the Dow Jones industrial average was up 23.97 points, or 0.26 percent, at 9,348.98. The Standard & Poor's 500 Index was down 0.51 points, or 0.05 percent, at 968.24. The Nasdaq Composite Index was up 13.48 points, or 0.78 percent, at 1,734.43.Dow components Verizon and AT&T helped lead the blue-chip average higher. Wachovia said telephone companies Verizon and AT&T were safe havens in an economic slowdown.

Shares of Biogen, among stocks seen positioned to fare better in a slumping economy, jumped 8.2 percent to $46.05, putting the stock among the Nasdaq's standouts.Shares of Gilead Sciences, another biotech company, climbed 4.1 percent to $47.78, while those of Amgen advanced 2.8 percent to $61.55.
Utility E.ON added the most points to the pan-European FTSEurofirst 300 benchmark with a 7.1 percent gain, benefiting from a reweighting of Germany's DAX index. The index ended 0.5 percent higher at 933.72.

The FTSEurofirst index shed 12.7 percent in October, its worst monthly performance in six years. The index is down nearly 40 percent this year due to the credit crisis, which led to meltdown in the banking sector and a slowing of the economy.

Analysts said a recovery in equities continued, but markets would be hostage to news about the U.S. president election on Tuesday and monetary policy on Thursday when the European Central Bank and Bank of England are likely to cut rates.

"Nothing new has turned up that's frightening," said John Haynes, strategist at Rensburg Sheppard Investment Management.

"Things have looked like repairing, though investors will wait for the results of the U.S. elections and the rate moves later in the week." Other defensive gainers included GlaxoSmithKline, up 4.4 percent, Novartis, which rose 2.7 percent and a 2 percent gain in foods group Nestle. Euro zone government bond prices rose in a busy week as investors anticipate a raft of interest rate cuts aimed at containing the fallout from the global financial crisis.

Following rate cuts from the U.S. Federal Reserve and the Bank of Japan last week, the European Central Bank, Britain and Australia are all expected to cut interest rates by at least 50 basis points apiece this week.The benchmark 10-year U.S. Treasury note was up 11/32 in price to yield 3.93 percent, while the 2-year U.S. Treasury note rose 4/32 in price to yield 1.49 percent.

U.S. light sweet crude oil fell $3.26 to $64.55 a barrel.

Spot gold prices rose $4.65 to $727.70 an ounce.
The MSCI index of Asia-Pacific stocks outside Japan rose 5.9 percent, up for a fifth consecutive session. Japan's stock markets were closed for a holiday. (Writing by Herbert Lash; Editing by Tom Hals)