Deadly bomb blasts in Madrid provoked a stampede out of shares into safe-haven bonds on global financial markets on Thursday, deepening losses triggered by worries that economic recovery in the U.S. is stalling. Wall Street looked set for a sharp sell-off as investors speculated the blasts in Spain, one of the leading members of the U.S.-led coalition against terror, were the work of al-Qaeda. A source at Spain's interior ministry said 173 people died in bomb attacks on rush-hour trains in the country's capital. Spain's Interior Minister blamed Basque separatist guerrilla group ETA for the blasts but radical Basque nationalist leader Arnaldo Otegi, leader of banned political party Batasuna, said he did not believe it was responsible.
"We were down on the back of Wall Street first thing, and then with this thinking that maybe ETA's not responsible for this but it may be al Qaeda or another terrorist group, the market's really suffered a lot of downwards momentum," said one stock dealer. Data released on Wednesday showed the U.S. racked up a record trade defict of $43.1 billion in January, adding to fears about jobs growth in the world's largest economy and triggering a big fall on Wall Street on Wednesday. U.S. jobless claims and retail spending are due at 1330 GMT. By 1225 GMT, the DJ Euro Stoxx 50 index <.STOXX50E> was down 2.8 percent at 2,840.7 points. The FTSE Eurotop 300 index <.FTEU3> was off 2.5 percent at 987.6 points.
BONDS UP, DOLLAR REVERSES EARLY GAINS
The Madrid blasts triggered safe-haven buying of euro zone government debt sending prices sharply higher and yields to eight-month lows. The 10-year Bund yield was down 5.0 basis points at 3.868 percent. The two-year Schatz yield was down 5.3 basis points at 2.112 percent. Corporate bonds dropped in value as well, with the liquid auto sector the hardest hit. The biggest borrowers like General Motors Corp. and Ford Motor Co. are proxies for U.S. economic risk. Traders said liquidity for credit derivatives on hotel stocks was drying up as fears mounted over the nature of the Madrid blasts. The euro rebounded after hitting one-week lows against the dollar and the safe-haven Swiss franc rallied broadly after news of explosions in Madrid. "There's been buying of Swiss across the board on the back of the terrorism activity," said a London-based trader. By 1225 GMT, the euro traded at $1.2252 flat on the day after erasing earlier losses that took it down to $1.2165. The dollar lost 0.5 percent against the Swiss franc, trading at 1.2783 . In its March monthly report, the European Central Bank confirmed its picture of a gradual euro zone economic recovery with limited inflation risks, signalling unchanged interest rates for some time to come. The dollar eased to 110.57 yen , a touch lower from the U.S. close. The dollar's drop below 111 yen in the previous session indicated Japan might be changing tactics in its latest phase of aggressive yen-selling intervention, pulling out of the market only to come back in at lower levels.///www.reuters.com