GLOBAL MARKETS-Stocks fall, bonds rise in Iraq watch

www.forbes.com Reuters, 02.24.03, 6:11 PM ET By Jan Paschal NEW YORK, Feb 24 (Reuters) - Stocks fell in most of the world's major markets on Monday while U.S. bonds rose as investors sought safe-haven investments after the United States and Britain circulated a U.N. resolution setting the stage for war with Iraq. Tokyo proved to be the exception to falling-stocks syndrome, with the Nikkei finishing higher following Friday's rally on Wall Street. The yen hit its highest level against the dollar in almost a month on word that Toshihiko Fukui, a conservative on policy, would be the next governor of the Bank of Japan. Fears of a U.S.-led war with Iraq pushed the dollar down against the euro, Europe's single currency. France and Germany are among the U.N. Security Council members opposing U.S. plans to use military force, instead of diplomacy, to oust Iraq's President Saddam Hussein. "War talk is putting the market on the defensive," said John Person, head analyst with Infinity Brokerage Services. In New York, crude oil futures jumped in reaction to concerns that a war in Iraq could disrupt supplies, already thinned by a strike in Venezuela. A bitter cold snap and forecasts for more of the same in the northeastern United States drove up heating oil futures prices and spilled over into the crude market. Gold futures soared in New York, buoyed by a tide of safe-haven investing sentiment. WALL STREET HIT BY WAR DRUMS The blue-chip Dow Jones industrial average <.DJI> fell 159.87 points, or 1.99 percent, to close at 7,858.24, according to the latest available data. The broader Standard & Poor's 500 Index <.SPX> lost 15.59 points, or 1.84 percent, to 832.58. The technology-laced Nasdaq Composite Index <.IXIC> dropped 26.64 points, or 1.97 percent, to 1,322.38. After two straight weeks of gains on Wall Street, worries of a military strike against Iraq sidelined investors once again as Washington and London circulated a new resolution at the United Nations on Monday. The measure declares Baghdad in violation of U.N. demands to disarm peacefully. British Foreign Secretary Jack Straw said the U.S. and Britain would allow two weeks for a U.N. decision on the new resolution, reinforcing long-held market suspicions that an attack on Iraq was likely sometime in March. "You have the Iraq decision, which keeps getting moved out. It's like water torture," said Michael Murphy, head of equity trading at Wachovia Securities. "Until then, there is no rhyme or reason to get out there in stocks." Retail stocks slid after top retailers J.C. Penney Co. Inc. (nyse: JCP - news - people) and Federated Department Stores Inc. (nyse: JCP - news - people) cut their February sales forecasts, saying severe winter storms hurt business over the Presidents Day weekend. J.C. Penney lost 95 cents to $19.39. Federated shed 76 cents to $24.82. Wal-Mart, a Dow stock, lost $1.26 to $47.64. FROM EUROPE, A WHIFF OF ENRON In addition to the prospects of war in Iraq, another factor that rocked European equities on Monday was news that retailer Ahold <AHLN.AS> (nyse: AHO - news - people) of The Netherlands had found accounting irregularities at its U.S. Foodservice unit and its chief executive and chief financial officer had resigned. The FTSE Eurotop 300 index <.FTEU3> slipped 8.99 points or 1.14 percent to 777.13. In Amsterdam, Ahold shares lost up to 68.3 percent of their value. On the New York Stock Exchange, the U.S.-listed shares of Ahold fell 61.09 percent, or $6.53, to finish at $4.16. "It's a shock," said Gert de Mesure, head of equity strategy at Delta Lloyd Securities in Antwerp. "The company will find it more difficult to finance all its debt, and Ahold now will have to find a new credible management and guarantee the continuity of the business." The DJ Stoxx 50 index <.STOXX50> fell 23.09 points or 1.04 percent to 2,196.99. In London, the FTSE 100 index <.FTSE> declined 25.3 points, or 0.68 percent, to close at 3,701.8. Monday's session was not kind to drug stocks on either side of the Atlantic. In Germany, shares in Bayer AG fell nearly 10 percent after The New York Times reported in its Saturday edition that Bayer's senior executives know of the risks associated with its cholesterol drug, Baycol, long before the medicine was recalled. Bayer, part of the blue-chip DAX index <.GDAXI>, fell 9.73 percent to close at 14.29 euros, its lowest level since July 1993. The DAX fell 2.93 percent. On the Nasdaq, shares of vaccine maker VaxGen Inc. (nasdaq: VXGN - news - people) sounded another downbeat note, sinking as much as 55 percent after its president said a trial of the first AIDS vaccine to be tested in people was overall a failure. VaxGen sank $6.16 to $6.86. In Tokyo, the benchmark Nikkei average <.N225> closed at 8,564.95, up 51.41 points or 0.60 percent. BONDS, GOLD, OIL RALLY; DOLLAR FALLS In the U.S. government bond market, the benchmark 10-year note <US10YT=RR> rose 11/32 to 100-6/32, taking its yield back down to 3.85 percent from 3.89 percent late on Friday, and back toward the year low around 3.84 percent. The 30-year bond <US30YT=RR> climbed 15/32 to 108-17/32 for a yield of 4.81 percent, down from 4.85 percent on Friday. "The market is priced somewhere in between a war and a major disaster," said Mark Mahoney, fixed-income strategist at UBS Warburg. "We're not priced for a peaceful solution. We're not priced for a quick resolution." In late U.S. currency trading, the yen <JPY=> traded at 117.85 per dollar, up 0.60 percent from 118.69 at Friday's close. Earlier in the day, the yen rose as high as 117.60 per dollar, its highest level in almost a month. The euro <EUR=> rose to $1.0789 against the dollar from $1.0765 on Friday. On the New York Mercantile Exchange, crude oil for April delivery rose 90 cents to settle at $36.48 per barrel, not far from its 29-month high of $37.55 hit last Thursday. NYMEX heating oil for March delivery jumped 3.47 cents to settle at $1.0475 a gallon. In London, April Brent crude gained 91 cents to $33.18 a barrel. COMEX April gold surged $4.60 to end at $356.40 an ounce.