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GLOBAL MARKETS-Gold at record, stocks off on growth, credit fear

Published 08/02/2011, 10:25 AM
Updated 08/02/2011, 10:28 AM

* Gold hits ninth record high this year

* Spanish, Italian bond yields hit multi-year highs

* U.S. stocks slip in early trade

(Updates to U.S. market open, changes byline, dateline from previous LONDON)

By Rodrigo Campos

NEW YORK, Aug 2 (Reuters) - Gold prices hit a new record high and riskier assets like stocks fell further on Tuesday as investors focused on slowing global economic growth and the euro zone's spreading credit problems.

Markets moved on from the approval of a rise in the U.S. statutory borrowing limit by the House of Representatives on Monday night. The U.S. Senate is expected to pass the measure later on Tuesday, but fear that the United States could still lose its triple-A credit rating persisted. [ID:nN1E76U0F5]

In economic data on Tuesday, U.S. consumer spending dropped in June for the first time in nearly two years, adding to worries the world's largest economy would remain stagnant in the third quarter. [ID:nN1E7710A7]

"With the debt ceiling almost in the rear view mirror, the market has turned its attention to peripheral spreads in Europe which are widening despite efforts by the (European Union) to contain the crisis," said Steve Van Order, fixed income strategist with Bethesda, Maryland-based Calvert Investment Management Inc, which has more than $14.5 billion in assets under management.

The preference for safe haven assets helped lift gold to its ninth record high this year. Spot gold

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U.S. Treasuries rose for a fourth-straight day with the benchmark 10-year up 8/32 to yield 2.722 percent.

Stocks opened lower on Wall Street as investors feared the compromise reached to raise the U.S. debt ceiling does not do enough to satisfy credit rating agencies which have threatened a downgrade that could increase Treasury yields and raise borrowing costs.

"There's been no clear direction given about how these issues will ultimately be resolved, which is another reason the market is concerned," said Kenneth Buckfire, chief executive officer at Miller Buckfire in New York. "The growth prospects of the U.S. are limited."

The Dow Jones industrial average <.DJI> dropped 40.38 points, or 0.33 percent, to 12,092.11. The Standard & Poor's 500 Index <.SPX> fell 6.13 points, or 0.48 percent, to 1,280.81. The Nasdaq Composite Index <.IXIC> lost 3.52 points, or 0.13 percent, to 2,741.09.

MSCI's world equity index <.MIWD00000PUS> fell 0.7 percent on the day, to its weakest since June 28. The benchmark index is almost flat since January.

European stocks <.FTEU3> fell 1.1 percent and Ialian shares <.FTMIB> fell 1.4 percent.

"The fear of the market is that the world is going into recession again... and in the euro zone the peripheral markets are the ones that will suffer most," said Alessandro Giansanti, strategist at ING in Amsterdam.

Italian bond yields hit their highest level in the euro's 11-year lifetime, a sign that Rome is overtaking Madrid as the main focus of investors' concern about debt sustainability. For more information, please see [nL6E7J21QN]

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The Italian 10-year BTP yield was up 6.09 percent

The two countries have been under increased pressure in recent weeks as markets feel the size of the euro zone's bailout fund is too small to protect larger fringe economies if contagion from the Greek crisis cannot be stopped.

The Swiss franc rose to a record high against the euro and held close to a record versus the dollar on concerns about euro zone sovereign debt problems.

The euro pared losses against the greenback after the weak U.S. spending data, and later turned positive. (Additional reporting by Ellen Freilich, Ryan Vlastelica, Jessica Mortimer and European bureaus)

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