New York order spooks Wall Street, offsets calm from policy efforts

By Herbert Lash

NEW YORK (Reuters) - Wall Street retreated on Friday after New York ordered residents to stay home, rattling investors who had welcomed this week's fiscal and monetary measures to counter the coronavirus shock and help revive the safe-haven appeal of bonds and gold.

Gold rose more than 3% at one point as it regained a bit of its flight-to-safety lustre and the yield on U.S. Treasuries fell as emergency measures aimed at stabilizing financial markets briefly took hold after days of sharp volatility.

The dollar staged a furious rally this week as investors scrambled to obtain cash, rising 4.32% in the biggest weekly gain since the 2008 financial crisis. The policy efforts helped staunch the steep nosedive in global equity markets.

Stocks had gained on Thursday in less-tumultuous trade and were trading higher on Wall Street before New York Governor Andrew Cuomo said he would mandate all non-essential workers to stay home and all non-essential businesses close.

Cuomo pleaded for more medical personnel and supplies to treat coronavirus cases that could overwhelm the hospitals in New York, a state of nearly 20 million.

Cuomo's remarks "spooked people, it spooked the market," said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. "It's all fear, fear of more negative headlines."

On Wall Street, the Dow Jones Industrial Average <.DJI> fell 913.21 points, or 4.55%, to 19,173.98. The S&P 500 <.SPX> lost 104.47 points, or 4.34%, to 2,304.92 and the Nasdaq Composite <.IXIC> dropped 271.06 points, or 3.79%, to 6,879.52.

U.S. stocks had been poised for their first two-day gain since Wall Street tumbled from all-time highs in February to their sharpest decline in three decades.

A top International Monetary Fund official said the impact of the coronavirus pandemic would be "quite severe" but the long expansionary period preceding it should help the global economy weather the shock.

The Federal Reserve rolled out more emergency support as it enhanced efforts with other major central banks to ease a global dollar-funding crunch. It also backstopped a market essential for U.S. state and local government finances and ramped up its purchases of mortgage-backed securities.

Markets have been reassured by the speedy central bank action this week but the full fiscal response from governments remains to be seen and is critical, said Kristina Hooper, chief global market strategist at Invesco in New York.

"The dash to cash we saw earlier this week has been relaxed a bit. Now Treasuries are once again perceived to be a safe-haven asset class," Hooper said. "That's good, as it suggests at least a dialling down of risk-off sentiment."

Norway's central bank became the latest to cut interest rates, while China was set to unleash trillions of yuan of fiscal stimulus to revive its economy.

The dollar eased after currencies, from the Australian dollar <AUD=> to the British pound <GBP=>, tumbled to multi-year lows earlier this week.

MSCI's U.S.-centric gauge of stocks across the globe <.MIWD00000PUS> shed 1.84%, while emerging market stocks rose 4.58%.

U.S. gold futures <GCcv1> settled 0.4% higher at $1,484.6 an ounce.

The dollar rose against a basket of currencies <=USD> in a week when investors liquidated everything from stocks to bonds to gold and commodities to raise cash. The dollar hit a three-year peak of 102.99 in early Asian trading.

The dollar index <=USD> fell 0.214%, with the euro <EUR=> down 0.24% to $1.0664.

The Japanese yen weakened 0.44% versus the greenback at 111.23 per dollar.

U.S. home sales surged to a 13-year high in February, but the housing market recovery is likely to be derailed by the coronavirus outbreak, which has unleashed a wave of layoffs and left the American economy headed toward recession.

The global economy already is in recession as the hit to economic activity from the pandemic has become more widespread, according to economists polled by Reuters.

Oxford Economics cut its global growth forecast for 2020 to zero, making this year the second-weakest for the world economy in almost 50 years of comparable data, with only 2009, in the depths of the global financial crisis, being worse.

The broad pan-European STOXX 600 index <.STOXX> rose 1.82%. But stocks pared some of their gains as fears over the economic shock from the coronavirus quashed initial optimism.

Britain's FTSE <.FTSE> rose 0.8%, Germany's DAX <.GDAXI> gained 3.7%, and France's CAC 40 <.FCHI> rose 5%.

The European Central Bank's 750 million-euro emergency bond purchase scheme, announced on Wednesday, has boosted southern European debt, alleviating some concern over how already heavily indebted states would finance the fiscal measures needed to defend against coronavirus.

Investors in Asia were happy that Wall Street had not plunged again. South Korean shares <.KS11> bounced 7.4%, though that still left them down more than 11% for the week.

Australia's beleaguered market <.AXJO> eked out a 0.70% gain, and futures for Japan's Nikkei <.N225> were trading up at 17,710, compared with the cash close of 16,552.

Oil prices fell for the fourth week in a row, with U.S. crude posting its worst week since 1991, as the coronavirus outbreak knocked the demand outlook and Moscow rejected U.S. intervention in its price war with Saudi Arabia.

West Texas Intermediate <CLc1> fell $2.69 to settle at $22.53 a barrel while Brent crude futures <LCOc1> fell $1.49 to settle at $26.98 a barrel.

Euro zone bond yields tumbled as risk sentiment picked up to support Southern European bonds.

Relatively calm trading in U.S. Treasuries early in the session returned to the volatile patterns seen earlier this week after Cuomo said he would issue his executive order.

Benchmark 10-year U.S. Treasury notes <US10YT=RR> fell 124 basis points to yield 0.8869%.

Graphic: World FX rates in 2020 http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html

(Reporting by Herbert Lash; Editing by Dan Grebler and Sonya Hepinstall)