TheFXSpot: Mayhem Hits Fever Pitch; Stocks Rebound, FX Mixed 5  FEB   By Vicki Schmelzer NEW YORK, Feb 5 - The mayhem in financial markets hit a fever pitch Friday, with stock, commodity and FX prices experiencing wild swings before stabilizing in late afternoon. By Vicki Schmelzer NEW YORK, Feb 5 (MNI) - The mayhem in financial markets hit a fever pitch Friday, with stock, commodity and FX prices experiencing wild swings before stabilizing in late afternoon. At the end of a tumultuous week, U.S. trading action was again driven by a "Wall of Worry," with market players taking only mild solace from an unexpected 0.3% drop in the U.S. unemployment rate. January non-farm payroll data released earlier showed payrolls fell by 20,000, below MNI's median of unchanged, with backward revisions of -5,000 for November and December. However, the unemployment rate fell to 9.7% from 10.0% in December, and was well below median estimates of 10.1%. Analysts viewed the January jobs report as promising, but saw little to suggest a vastly improving trend. Risk appetite picked up modestly in response to the jobless rate drop, but enthusiasm quickly died, as still-wide credit spreads of Greece/other peripheral eurozone countries overshadowed U.S. data. The S&P 500 closed up 0.29% at 1066.19, after trading in a 1044.89 (three month low) to 1066.49 range. At the day's low, the S&P was down 9.2% from the 2010 high of 1150.50, seen January 19 - only two and a half weeks ago. Important support is seen at 1029.38 the November 5 low and 1020.22, the October 2 low (think double-bottom), with the 200-day moving average coming in at 1018.79 (Friday), creating a larger support zone. In the FX world, the euro was trading at $1.3668 Friday, in the middle of the day's $1.3586 to $1.3746 range. At the lows posted earlier, the pair was off 10.3% from the $1.5141 peak posted December 3. Spot gold closed at $1066.25/oz, after trading in a $1044.75 to $1068.65 range. At its earlier low, the precious metal was off 14.8% from the life-time peak of $1226.10, seen December 3. Traders viewed the sell-off seen over the past few weeks in all instruments as overdone, but were wary of fighting the trend. Only last week, the International Monetary Fund, in it's World Economic Outlook (WEO), revised its 2010 world growth forecast to 3.9% from the October of 3.1% and upwardly revised its forecasts for nearly every other economy. The WEO forecast U.S. growth of 2.7% in 2010, revised up 1.2 points, but the 2011 figure was trimmed by 0.4 to 2.4%. Euro area growth was revised up 0.7 to 1.0% for this year, and revised up 0.3 to 1.6% for 2011. Emerging markets were viewed as a driving force in the recovery, fueled by strong domestic demand, the IMF said. China's GDP was seen growing 10.0% this year, compared to just 9.0% in the October WEO, while India is likely to grow 7.7% rather than just 6.4%. Mexico and Brazil were revised up as well to 4.7% and 4.0%, respectively. Flash forward a week and a half, and financial markets are frenzied and in panic mode, with the notion of global recovery tossed out the window, amidst whispers of "double dip" recession, whether justified or not. "Smart money is in the process of making a profit - they have been short equities and the high yielders," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon. In contrast, real money accounts have tended to "shrink to the sidelines" in response to the sharp turn-about in risk sentiment seen since mid January, he said. What started off as paring back of risk positions on the prospects of China tightening interest rates earlier than expected, soon escalated into further position reductions in response to widening credit spreads in the peripheral eurozone countries debt. Key technical support levels began to be broken in commodities and stocks, as well as resistance levels in the dollar, which exacerbated the trend. Picking bottoms was not yet recommended, but when risk sentiment does turn more upbeat, a fast-paced recovery in many instruments may be seen. "This specific sell-off is starting to look a little overextended," said Bank of New York Mellon's Woolfolk. He looked for "more confidence" and "more risk appetite" in coming weeks, as market concern about the eurozone fades and players begin to focus on recent solid U.S. data and overall recovery prospects for most countries. While analysts expected the Greek debt situation to eventually be resolved, they remained concern about what global debt, especially in the major countries, will mean to world recovery. "Europe has at least as much interest in avoiding the shock of severe defaults as in avoiding the shock of severe defaults in its periphery as the U.S. had when the Clinton administration stepped in with Mexican debt guarantees," said Avery Shenfeld, economist at CIBC World Markets, in a client note. "At worst, we are looking at a negotiated deal that keeps creditors close to whole," he said. Nevertheless, the "need for fiscal belt tightening" goes beyond select eurozone countries, with U.S., Japan and UK debt burdens looking "quite Hellenic as a share of GDP." Even if all of these countries go on a budgetary "diet" in 2011, it would be hard for the world's economy to get back to the 5.0% growth rates seen before the recession, "even if central banks pull only gently on their tightening reins." At least the widening credit spreads in the eurozone peripherals are forcing "painful," yet necessary, reform in Greece and "others of its kin." Without this pressure, "the larger industrialized economies will avoid the degree of fiscal stringency that would threaten the double-dip recession that equities are starting to worry about," Shenfeld said. Looking ahead, market players will pay close attention to the host of key economic indicators due out next week in China, including January PPI and CPI, fixed asset investment, retail sales, new loans data and industrial output. The data comes ahead of the Chinese New Year holiday, which begins February 15, traders reminded. Market players may be reluctant to hold extended positions into the holiday, just in case the Chinese central bank either raises interest rates or adjusts yuan policy, as has been rumored from time to time in recent weeks, they explained. The China Securities Journal, citing the State Information Center, reported Friday that Chinese growth may reach about 11.5% in the first quarter. CPI may rise by about 2.5% in the first quarter and the PPI may gain 5.5%, the report says, citing the research agency under the National Development and Reform Commission. Next week's U.S. data includes December international trade, January retail sales and preliminary February University of Michigan consumer sentiment. ** Market News International New York Newsroom: 212-669-6430 ** [TOPICS: MNEF01] 2/5/2010 5:35:00 PM