GLOBAL MARKETS-, dollar gains

(Refiles to fix typo in headline)

* U.S. stocks slump as fear of more bank failures grows

* Dollar rises versus yen after strong U.S. factory data

* Oil slips below $69 a barrel on equities, strong dollar

U.S. stocks fell sharply on Tuesday as growing concerns about the U.S. banking system and over whether a recent rally in equity markets is warranted drove investors to the relative safety of bonds and the dollar.

A debate over the future of the U.S. Federal Reserve is taking place in the halls of Congress.

The stock market seems to be rolling over. Investors read the news. It’s probably
becoming clear to them that the economy is not going back to normal any time soon.

If inflation doesn’t get us, incompetent government action will. This is the view of one of our favourite common sense Economist, Willem Buiter, professor of European Political Economy at the London School of Economics and Political Science.

Is the crisis really over? Commercial paper spreads have come down dramatically. Libor rates are (hmm – almost) back to normal. Even high yield spreads are narrowing.

“Never in the history of the world has there been a situation so bad that the government can’t make it worse.” -Unknown

Bernanke Sees Late-09 Turnaround; Canadian Dollar Hits Six-Month High; Kraft Beats 1Q Estimates; South Africa Unemployment Hits 23.5%; Service Sector Gains Ground; AIG’s First Quarter Loss Expected to Shrink; Some Traders Oppose Up-Tick Rule; Chile’s Peso Rallies to 7-Month High Against Dollar

The dogs in the street know Washington is going to have to come up with more cash to plug the gaping holes in banks’ balance sheets. Of course, our Orwellian government doesn’t want us to think that major banks such as Citigroup and Bank of America are insolvent.

Since the Obama administration took office almost 100 days ago, it has repeatedly said the key to an economic recovery is to unfreeze the credit markets and increase bank lending. 

Gold slipped on Tuesday, pressured by a rising dollar and a firmer tone on equity markets, but analysts said inflationary concerns would underpin bullion’s safe-haven appeal.