Credit Suisse unease sparks sell-off in world stocks; gold resumes rally

Renewed unease gripped world markets on Wednesday as news that Credit Suisse's largest investor said it could not provide the Swiss bank with more financial assistance sent its shares and broader European shares sliding.

The yield on two-year US Treasury notes fell to its lowest since September.

Gold prices renewed their recent rally as investors sought safe havens. Oil prices pared losses after dropping to their lowest in more than a year.

Concern over further banking sector instability and closely watched inflation data published on Wednesday raised expectations the Federal Reserve may pause or slow down hiking rates.

The MSCI world equity index .MIWD00000PUS, which tracks shares in 49 nations, lost 1.76%.

The Dow Jones Industrial Average .DJI fell 509.01 points, or 1.58%, to 31,646.39; the S&P 500 index .SPX lost 54.49 points, or 1.39%, at 3,864.80; and the Nasdaq Composite .IXIC was down 111.12 points, or 0.97%, at 11,317.03 by 11:32am EDT (1533 GMT).

Retail sales dropped 0.4% last month, the US Commerce Department said on Wednesday, largely in line with expectations. January data was revised higher to show growth of 3.2% instead of 3.0% as previously reported.

Signs of calm and stability in banking stocks, which have tanked in the past week following the collapse of Silicon Valley Bank (SVB), soon paved way for renewed selling as Credit Suisse shares fell to record lows.

The STOXX 600 .STOXX index fell 1.29%, while Europe's broad FTSEurofirst 300 index .FTEU3 fell 44.48 points, or 2.51%.

Europe's bank index has seen more than 120 billion euros evaporate ($127.08 billion) in since 8 March.

Investors rushed back into safe haven investments. Two-year German bond yields down over 30 basis points at 2.60% DE2YT=RR. The two-year Treasury yield has tumbled 98 basis points in the last five days, the biggest drop since the week of Black Monday on 19 October, 1987.

The yield on benchmark 10-year Treasury notes US10YT=RR rose to 3.4249% from its US close of 3.636% on Tuesday.

Spot gold prices XAU= rose 1.11% to $1,923.19 an ounce.

"The Credit Suisse share price is falling and government bonds are rallying on the back of that. Still very much driven by the perceived health of the banking sector, but this time in Europe," said Antoine Bouvet, senior rates strategist at ING.

The European Central Bank is still leaning towards a half-percentage-point rate hike on Thursday, despite turmoil in the banking sector, given high inflation, a source close to its Governing Council told Reuters.

Markets are "spooked" by Credit Suisse headlines, said Richard McGuire, head of rates strategy at Rabobank in London.

This has caused the share price fall and the surge in short dated German bonds but he did not think this would affect central bank decision making.

"For today Credit Suisse is the dish of the day but we don't think this will be a longer lasting trend," he said.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.6%, having slid 1.7% on Tuesday. Japan's Nikkei index was flat .N225 while an index of Japanese banks, which has slid 8% this week, jumped over 3% .IBNKS.T.

But US equity futures fell sharply as European banking stocks tumbled. US stock futures fell 1.6% ESc1 at 1155 GMT.

Bruised US bank stocks regained some ground on Tuesday aided by news that private equity and buyout giants were looking to scoop up some of SVB's assets. Investors were hopeful that efforts to shore up confidence would avert a wider financial crisis.

Back to central banks

As recently as last week, markets braced for the return of large Fed interest rate rises but the swift collapse of SVB has changed those expectations, with markets pricing in an 80% chance of a 25 basis point hike next week.

"The easing of recent inflationary pressures, combined with concerns about the banking industry, finally give the Fed reason to discuss a possible end to their tightening cycle at next week's meeting," said John Lynch, chief investment officer for Comerica Wealth Management in Charlotte, North Carolina.

The euro EUR= was down 1.7% at $1.0544, having lost 0.3% in a month, while the dollar index =USD, which tracks the greenback against a basket of currencies of other major trading partners, was up at 104.86.

In commodities, oil prices extended their slide to the lowest in more than a year on the global unease. US crude CLc1 was last down 5.2% to $67.62 a barrel. Brent crude LCOc1, the global benchmark, fell to $73.72 per barrel.

($1 = 0.9443 euros)