Enlarge imageBy Jennifer Ablan
NEW YORK (Reuters) - Investors scrambled for safety on Tuesday, driving world stocks lower and propelling bids for government bonds and the dollar on poor results from UBS
UBS shares were down nearly 6 percent following news the Swiss bank suffered a larger-than-expected asset outflow in the third quarter For more, see: [nL2713325]. Lloyds shares were under pressure after it launched a record 13.5 billion pound ($22 billion) rights issue. Along with RBS, it agreed to sell off businesses as part of a deal to limit reliance on government support.
Adding to the sector's problems, the European Commission said results of stress tests on euro zone banks showed losses could amount to 400 billion euros ($590.9 billion) in 2009-2010.
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"Equity market setbacks have a propensity to re-ignite risk aversion investment activity," said Tom Sowanick, co-president and chief investment officer of Omnivest Group.
World stocks as measured by MSCI <.MIWD00000PUS> fell 0.44 percent. The index rallied by 75 percent between early March and late October on growing optimism over the global economy, but fell 4 percent last week.
The FTSEurofirst 300 <.FTEU3> index of top European shares was down 1.16 percent, losing ground for the sixth time in nine sessions. Riskier emerging market shares <.MSCIEF> fell 0.83 percent.
Parts of the U.S. equities market were down.
The Dow Jones industrial average <.DJI> was off 17.53 points, or 0.18 percent, at 9,771.91, but the Standard & Poor's 500 Index <.SPX> was up 2.53 points, or 0.24 percent, at 1,045.41. The Nasdaq Composite Index <.IXIC> was up 8.12 points, or 0.40 percent, at 2,057.32.
Gold, which typically benefits during periods of uncertainty for economic growth and financial markets, jumped to a record, but not on risk-aversion trades.
Spot gold prices hit a record $1088 following news that India's central bank bought 200 metric tons of the metal from the International Monetary Fund, heightening speculation there may be more official purchases.
At the end of Tuesday trading, gold gained $26.00, or 2.46 percent, to close at $1084.80.
INVESTORS HIDE IN DOLLARS
Not coincidentally, the safe-haven dollar was up against a basket of major trading-partner currencies, helped by lower equity markets. The U.S. Dollar Index <.DXY> gained as much as 0.20 percent to 76.444 before edging back to 76.331, up 0.05 percent, from a previous session close of 76.290.
In early trade on Tuesday, the Dollar Index climbed as high as 76.817, its highest since early October.
The euro was down 0.36 percent at $1.4715 from a previous session close of $1.4768. Against the Japanese yen, the dollar was up 0.01 percent at 90.34 from a previous session close of 90.330.
The Federal Reserve starts a two-day meeting on interest rates on Tuesday, the European Central Bank and Bank of England make rate decisions on Thursday, U.S. employment data is due on Friday and G20 finance ministers meet in St Andrews, Scotland, this weekend.
"A lot of the dollar rally in the last 8-9 days is based on a tough Fed. They think the Fed is going to change their language or do something but they can't do anything until employment turns around," said Lance Lewis of Lewis Capital Partners.
The Fed is not expected to depart from a policy of maintaining low rates for an extended period but it could discuss how to prepare markets for an eventual policy shift. The ECB and BoE are expected to keep rates on hold, but the UK central bank may decide to pump yet more money into the economy.
The Australian dollar fell more than 1 percent after the country's central bank raised rates on Tuesday for a second consecutive month, hiking to 3.5 percent.
In energy and commodities markets, U.S. light sweet crude oil rose $1.29, or 1.65 percent, to $79.42 per barrel. The Reuters/Jefferies CRB Index <.CRB> was up 2.99 points, or 1.09 percent, at 276.49.
(Additional reporting by Natsuko Waki in London and David Gaffen in New York, Editing by Andrew Hay)
