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* European shares, S&P 500 futures down
* New coronavirus strain shuts much of UK, overshadows U.S.
stimulus
* Pound hit, Brexit talks drag on with no deal
* Oil, copper prices slide; dollar higher
By Sujata Rao
LONDON, Dec 21 (Reuters) - European shares fell 3% on
Monday, the dollar strengthened and volatility surged across
asset classes as a fast-spreading new coronavirus strain in
Britain threatened to torpedo markets' optimism over a
vaccine-fuelled rebound in economic growth.
Wall Street was tipped to open sharply lower.
The strain, said to be up to 70% more transmissible than the
original, has put some 16 million Britons under tougher
lockdowns and prompted several countries to shut their borders
to the UK, effectively overshadowing positive U.S. news on a
much-needed stimulus bill.
The shutdown of international travel and the flow of freight
in and out of Britain threatens chaos for British households and
businesses.
Coinciding with the lack of a post-Brexit trade deal ahead
of the Dec. 31 deadline, it sent the pound 2.5% lower below
$1.32 putting it on track for its biggest daily fall
since March.
Losses of more than 3% on UK equities were
led by bigger tumbles at UK banks Lloyds and Barclays
which were both down more than 6% at one stage.
European equities fell around 3%, travel and leisure stocks
lost around 5% .
"Our main concern for the next few months in Europe would be
that the UK (COVID-19) variant is already out of control on the
continent, which would add to the pressure on the healthcare
systems, forcing even stricter lockdowns at a growing economic
cost," Gilles Moëc, chief economist at AXA Investment Managers,
told clients.
The market losses triggered across-the-board increases in
volatility, a measure of price swings on an asset class, with
Wall Street's "fear gauge" the VIX up almost 40% on the day at
the highest since early November.
Currency volatility jumped as well, with overnight sterling
volatility approaching nine-month highs
Futures for the S&P 500 fell 2.5% while Nasdaq
futures were down almost 1%, having opened firmer when
U.S. Senate majority leader Mitch McConnell confirmed
congressional leaders had agreed a roughly $900 billion COVID-19
relief bill.
While safe-haven assets such as German and U.S. government
bonds rallied, gold, which usually rises during times of
turmoil, reversed earlier gains to fall 0.6% to $1,868.
Its weakness on a day of a big equity selloff will rekindle
memories of the market slump of March when investors sold assets
en masse in a rush for the dollar.
DOLLAR TIME
Speculators' dollar positioning remains broadly bearish,
meaning many might rush to cover those short trades.
The dollar index rose as high as 90.8, up more than
half a percent and well off last week's 89.723 level that marked
the lowest since April 2018.
The euro fell 1% at $1.216 while the yen lost half a
percent at 103.8 per dollar.
U.S. and German bond yields slipped, with 10-year U.S.
yields down six basis points. British two-year
borrowing costs hit record lows
The U.S. two-year/10-year Treasury yield curve, another
gauge of growth expectations, flattened a touch.
It had risen to its steepest level in almost three years on
Friday amid optimism about the stimulus bill..
The turmoil may also upend bullish bets on commodities such
as oil and copper which were expected to benefit from a growth
upswing next year.
Brent crude futures dropped more than 3% while copper, a key
economic growth barometer, fell off the $8000-per-tonne mark it
recently scaled for the first time since 2013 .
"The message is clear: oil prices are still very much and
will continue to be at the mercy of the pandemic," said Stephen
Brennock of oil broker PVM.
(Reporting by Sujata Rao; additional reporting by Wayne Cole in
Sydney, Editing by William Maclean)
