* 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) - Global equities tumbled, 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 at one point, though the currency clawed back
some of the losses to trade around $1.3285 by 1250 GMT.
Markets broadly edged off earlier lows though most stayed
firmly in the red. UK equities were down just
over 2%, while UK banks Lloyds and Barclays
lost more than 6% at one stage before recovering slightly.
European equities fell around 2.5%. Travel and leisure
stocks lost 3.5% .
"Our base case, based on what we know, is that we will stay
under strict lockdowns for weeks into the New Year," said Emiel
van den Heiligenberg, head of asset allocation at Legal &
General Investment Management.
He said the strain had already likely entered Europe,
meaning "countries that are not in lockdown will have no choice
but to do that quickly and that's what markets are reacting to."
The selloffs triggered across-the-board increases in
volatility, a measure of price swings on an asset class, taking
Wall Street's "fear gauge" the VIX to the highest since early
November.
Currency volatility jumped too, with overnight sterling
volatility approaching nine-month highs
Futures for the S&P 500 fell 1.8%, recouping some
earlier falls, while Nasdaq futures were down 1.2%.
While safe-haven assets such as German and U.S. government
bonds rallied, gold, which usually rises during times of
turmoil, fell as much as 1.3% before clawing back some of
that loss.
Its weakness on a day of big equity selloffs will rekindle
memories of the market slump of March when investors sold assets
en masse in a rush for the dollar.
On the positive side, U.S. congressional leaders have
finally agreed a roughly $900 billion COVID-19 relief bill.
LGIM's van den Heiligenberg predicted also that vaccine
rollouts would limit market downside.
"A correction is justified but a very strong selloff would
surprise us...because of the vaccine, by next March-April, we
should be able to think about normalisation again," he added.
DOLLAR DASH?
The equity selloff sent investors scurrying for the U.S.
dollar, pushing the greenback index as high as 90.8, well
off last week's 2-1/2- year low.
The euro fell as much as 1% at one point to $1.216.
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 could upend some bullish bets on oil and copper
which were expected to benefit from a growth upswing next year.
Brent crude futures dropped 3% while copper 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 and Andrea Ricci)
Barclays (BARC)
Lloyds (LLOY)
