(Recasts throughout with U.S. market focus, adds byline;
changes dateline, previous LONDON)
* Global stocks fall sharply as banking worries persist
* Dollar hits new all-time low against the euro at $1.6038
* Crude oil falls to under $139 barrel, easing stock pain
* Gold at four-month high on renewed safe-haven buying
By Herbert Lash
NEW YORK, July 15 (Reuters) - Global stocks fell sharply on
Tuesday, knocked lower by growing fears over the outlook for
banks, but a steep fall in oil prices alleviated equity markets
and helped stem safe-haven bids for gold and government debt.
Shares in Europe and Asia slid over 2 percent as banking
shares got hammered, and investors around the world flocked to
government debt amid persistent worries about the financial
sector's health as well as the global economic outlook.
U.S. stocks cut heavy losses, helped by a sharp drop in oil
prices and a dramatic turnaround in financial shares after the
head of the Federal Reserve said the banking system is
well-capitalized.
Fears about the world banking system overwhelmed any
lingering support in equity markets from a U.S. government plan
to rescue mortgage finance companies Fannie Mae <FNM.N> and
Freddie Mac <FRE.N>, sending the dollar to a record low against
the euro <EUR=>.
Oil futures <CLc1> fell more than $9 to near $136 a barrel
in volatile trade on technical factors, helping stocks on both
sides of the Atlantic to pare losses just before European
markets closed.
The S&P financial index <.GSPF> fell 2.8 percent as it
touched levels last seen in 1998.
"We're back into the panic mode we experienced back in
mid-March. The distrust is at a very high level and it is
totally justified," said Marie-Pierre Peillon, head of equity
and credit research at Groupama Asset Management in Paris.
"The U.S. housing crisis is getting worse, and it has now
spread from the 'subprime' segment to the 'prime' segment, with
regional banks getting hit now," she added.
Federal Reserve Chairman Ben Bernanke provided little
comfort for investors anxious about the economy, saying in
testimony before the Senate Banking Committee that financial
markets and institutions remain under "considerable stress."
Bernanke's comments about increased risks to inflation and
economic growth were expected, but still caused pause," said
Steve Goldman, market strategist at Weeden & Co. in Greenwich,
Connecticut.
"It's still alarming to hear and the market did react to
this news, given Bernanke didn't sugar-coat the situation,"
Goldman said.
Just before 1 p.m. EDT (1700 GMT), the Dow Jones industrial
average <> was up 0.82 point, or 0.01 percent, at
11,056.01. The broad Standard & Poor's 500 Index <.SPX> was
down 2.09 points, or 0.17 percent, at 1,226.21. The Nasdaq
Composite Index <> was up 15.78 points, or 0.71 percent,
at 2,228.65.
Shares of Fannie Mae <FNM.N> slid 17.5 percent and Freddie
Mac <FNM.N> tumbled 16.8 percent.
The two mortgage finance giants guarantee almost $5
trillion in U.S. mortgages.
Shares of General Motors <GM.N>, a Dow component, slid
almost 6 percent after the automaker announced a restructuring
plan and said it is suspending its dividend as part of efforts
to bolster its finances.
In Europe, the FTSEurofirst 300 <> index of top
European shares unofficially ended 2.1 percent lower at
1,110.09 points, after falling by more than 3 percent in
earlier trade. It was the index's lowest close since May 2005.
Banks bore the brunt of the slide. Fortis <FOR.BR><FOR.AS>
the biggest loser. The stock sank 11 percent on worries the
Belgian-Dutch financial services group might have to raise more
funds and after the Dutch market regulator said it was looking
into the company's funding plan.
Fortis said it did not envisage any additional capital
increase.
Royal Bank of Scotland <RBS.L> shed 7.1 percent, Natixis
<CNAT.PA> dropped 9.7 percent and Anglo Irish Bank <ANGL.I>
fell 6.9 percent.
Government debt rose even as U.S. Treasury debt prices
pared some gains, losing some of their safe-haven allure as
Wall Street attempted to rebound.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
8/32 to yield at 3.82 percent. The 30-year bond <US30YT=RR>
added 3/32 to yield 4.45 percent.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> off 0.29 percent at 71.739. Against the
yen, the dollar <JPY=> was down 1.13 percent at 104.94.
The euro <EUR=> rose 0.05 percent at $1.5911.
"We're seeing broad based risk aversion across asset
classes," said Niels From, chief analyst at Nordea.
U.S. light sweet crude oil <CLc1> was last down $6.97 to
$138.21 per barrel.
Gold hit a four-month high after Bernanke's comments
weighed on the dollar, triggered a drop in U.S. equity markets
and fueled safe-haven buying of the metal.
Spot gold prices <XAU=> fell $2.45 to $969.25 an ounce.
"The problems on the equity markets, uncertainty, and
general risk aversion are all bullish for gold at the moment,"
said Lehman Brothers analyst Michael Widmer.
Overnight in Asia, stocks fell to a two-year low as
investor confidence waned in regional banks, which face high
inflation, tighter lending standards and massive volatility
from overseas markets.
Japan's Nikkei share average <> ended down 2 percent
to its lowest level since April 1. The MSCI pan-Asia equity
index <.MIAS00000PUS> dropped 2.5 percent to almost a two-year
low.
(Reporting by John Parry, Nick Olivari, and Santosh Menon,
Kirsten Donovan, David Sheppard and Jan Harvey in London and
Blaise Robinson in Paris)
(Reporting by Herbert Lash; editing by Gary Crosse)
