* U.S. stock futures fall as much as 4.9%, Euro Stoxx 8.3%
* MSCI ACWI stock index down 19% from peak, on cusp of bear
market
* Markets expect ECB to cut rates despite side-effects
worries
* Fed futures price in strong chance of 1% rate cut this
month
* Safe-haven assets soar, but off recent highs
By Hideyuki Sano
TOKYO, March 12 (Reuters) - Financial markets reeled on
Thursday as stocks dived and oil slumped after U.S. President
Donald Trump took the dramatic step of banning travel from
Europe to stem the spread of coronavirus, threatening more
disruptions to trade and the world economy.
With the pandemic wreaking havoc on daily life of millions
worldwide, investors were also disappointed by the lack of broad
measures in Trump's plan to fight the pathogen, prompting
traders to bet of further aggressive easing by the Federal
Reserve.
Euro Stoxx 50 futures STXEc1 plunged 8.3% to their lowest
levels since mid-2016. They were last down 6.9% while investors
rushed to safe-haven assets from bonds to gold to the yen and
the Swiss franc.
U.S. S&P 500 futures ESc1 plummeted as much as 4.9% in
Asia and last traded down 3.6%, a day after the S&P 500 .SPX
lost 4.89%, leaving the index on the brink of entering bear
market territory, defined as a 20% fall from a recent top.
MSCI's broadest gauge of world shares, ACWI .MIWD00000PUS ,
could follow suit, having fallen 19.2% so far from its record
peak hit only a month ago.
"The travel ban from Europe has definitely taken everyone by
surprise," said Khoon Goh, head of Asia Research at ANZ in
Singapore.
"Already we know the economic impact is significant, and
with this additional measure on top it's just going to multiply
the impact across businesses. This is something that markets had
not factored in...it's a huge near-term economic cost."
Those fears left a trail of red across many markets.
Japan's Nikkei .N225 crumbled 4.4% to a trough last seen
almost three years ago while MSCI's broadest index of
Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 4.7%.
Australian shares .AXJO plunged 7.4% to the lowest level
in more than three years while Seoul's Kospi .KS11 fell 4.8%
to 4-1/2-year lows with massive selling prompting a brief trade
halt. Thai shares .SETI sank 8.8% to 8-year lows.
Trump announced on Wednesday the United States will suspend
all travel from Europe, except from the United Kingdom, to the
United States for 30 days starting on Friday. However, Trump
said trade will not be affected by the restrictions.
He also announced some other steps, including instructing
the Treasury Department to defer tax payments for entities hit
by the virus.
"For those who had been hoping for measures to offset likely
fall in consumption, it was a disappointment," said Hirokazu
Kabeya, chief global strategist at Daiwa Securities. "There was
no talk of payroll tax cuts."
In the money market, traders further raised their
expectations of an aggressive U.S. rate cut, underlining the
fears in markets of a deepening economic downturn even as the
Federal Reserve had stepped in last week with an emergency
easing.
Fed fund rate futures 0#FF: are now pricing in a large
possibility of a 1.0 percentage point cut, rather than 0.75
percentage point, at a policy review on March 17-18.
PANDEMIC
The World Health Organization (WHO) described the outbreak
as a pandemic for the first time on Wednesday though an official
said the move does not change the agency's response.
The highly infectious disease that virtually shut down most
parts of China for much of February is spreading rapidly in
Europe and increasingly in the United States, disrupting many
corners of life from education to sports, entertainment and
dining.
The U.S. National Basketball Association was the latest to
be hit by the pandemic as it announced it will suspend the
season until further notice. Investors worry how much of an effect economic policies can
have in turning around the global economy given the widespread
restrictions on daily life, travel and disruptions to
businesses.
A case in point was Britain, where the FTSE stock index
.FTSE hit near four-year lows on Wednesday as investors
doubted whether the $39 billion spending plan and the Bank of
England's 0.5 percentage point rate cut announced on Wednesday
would be enough to counter the shock from the outbreak.
The British pound last stood at $1.2807 GBP=D4 , near this
week's low.
"At this stage, we all need to take it on the chin and bear
it for a few months (in terms of economic disruption)," said
Cliff Tan, East Asian Head of Global Markets Research at MUFG
Bank in Hong Kong.
"Here in Hong Kong and China we have been through it and
know what's it like to shut down... I don't think the market has
fully caught on with how this disruptive this could be for the
economy."
Safe-haven assets were back in favour, though many of them
were still below recent peaks, which some market players suspect
reflects a desperate bout of profit-taking to make up for losses
suffered elsewhere.
Gold XAU= edged up 0.1% at $1,636 per ounce but still
stood well below Monday's high above $1,700.
The 10-year U.S. Treasuries yield fell 5 basis points to
0.766% US10YT=RR , though it is still more than 40 basis points
above a record low of 0.318% touched on Monday.
The two-year yield US2YT=RR fell 5 basis points to 0.449%,
but stood well above Monday's low of 0.251%.
In commodities, oil prices were hit by an intensifying price
war between Saudi Arabia and Russia, on top of fears of sharp
slowdown in the global economy.
Saudi Arabia promised to raise oil output to a record high
in its standoff with Russia.
The United Arab Emirates followed Saudi Arabia in promising
to raise oil output to a record high in April. U.S. West Texas Intermediate (WTI) crude CLc1 shed 4.1% to
$31.64 per barrel.
Copper, seen as a gauge of global economic health because of
its wide industrial use, fell to three-year lows. MET/L
In the currency market, the dollar slid against the
safe-haven yen and the Swiss franc.
The U.S. currency fell 0.8% to 103.66 yen and lost 0.3% to
0.9344 franc CHF= .
The euro traded at $1.1292 EUR= , up 0.2% ahead of the
European Central Bank's policy meeting later in the day.
The ECB is all but certain to unveil new stimulus measures,
including new, ultra-cheap loans for banks to pass onto small
and medium-sized firms. Markets have priced in a 10 basis point cut to its already
record low minus 0.50% policy rate though many policymakers have
said further cuts could be counterproductive because they hurt
bank margins to the point of thwarting lending.
Many emerging market currencies also sold off.
MSCI's emerging market currency index .MIEM00000CUS
dropped 0.7% to its lowest level since early October, with those
of oil-producing countries hit the hardest.