(Adds close of U.S. markets)
* Global stocks fall; Dow dips briefly into bear territory
* Oil prices surge to new record high near $143 a barrel
* Risk aversion prevails, lifting bond, oil, gold prices
* Dollar falls vs yen, Swiss franc as risk appetite wanes
By Herbert Lash
NEW YORK, June 27 (Reuters) - Oil hit another record and
global stocks fell further on Friday with the Dow briefly
dipping into bear market territory as investors fled risk to
the safety of gold, government debt and the Swiss franc.
With one trading session left in June, U.S. stocks were
headed to their worst month since September 2001, which marked
the end of the last bear market -- typically defined as a 20
percent drop from a bull market's peak.
Crude surged to a new record of $142.99 a barrel before
paring some gains. Tumbling equity markets helped trigger a
wider rally in commodities as investors took cash out of stocks
and shifted to other assets that take advantage of inflation.
Gold rose to a one-month high, lifted by oil's fresh spike
and a drop in the dollar against the euro. The safe-haven Swiss
franc rose to a three-week peak against the dollar. The August
contract <GCQ8> for gold in New York settled up $16.20 at
$931.30 an ounce.
U.S. Treasury debt rose after a rather benign reading of
inflation gave investors confidence the Federal Reserve may not
have to raise interest rates soon to combat price pressure.
Excluding volatile food and energy prices, the core price
index, which is the Fed's preferred measure of inflation, edged
up by 0.1 percent. This compared with a forecast for a 0.2
percent rise.
Selling gathered steam on Wall Street in afternoon trading
after Moody's Investors Service said it may cut the credit
ratings of Morgan Stanley <MS.N>, the latest round of gloomy
news to hit the battered financial services sector.
After the rout on Thursday that knocked the Dow down 358
points, investors were left grasping for answers on what else
might lay in store.
"In this kind of a market people are looking for any reason
to sell," said Chris Orndorff, managing principal and head of
equity strategy at Payden & Rygel. "It's the opposite of a bull
market when people take small positives and run with it. Now
people are taking small negatives and running for the hills."
Fear of more losses in banks and the impact of record oil
prices on the U.S. economy pushed equity markets lower.
"Higher oil prices are continuing to be a drag on the
market. The question is how much are they weighing on
discretionary spending," said Edward Bretschger, director,
equity sales and trading at Calyon Securities in New York.
The Dow Jones industrial average <> fell 104.46 points,or 0.91 percent, at 11,348.96, just shy of bear territory. The
Standard & Poor's 500 Index <.SPX> fell 4.65 points, or 0.36
percent, at 1,278.50. The Nasdaq Composite Index <> fell
5.74 points, or 0.25 percent, at 2,315.63.
It was the worst week for the Dow and Nasdaq since
mid-February.
"There is a bout of risk reduction across assets ... Oil
prices headed up and that's putting more pressure on equities,"
said Martin McMahon, FX strategist at Credit Suisse in Zurich.
Lehman Brothers predicted rival Merrill Lynch <MER.N> would
write down another $5.4 billion in the second quarter and
slashed its price target for the stock.
Merrill shares fell less than 1 percent to $32.77.
European stocks fell as profit warnings by retail
bellwether Carrefour <CARR.PA> and mobile phone maker Sony
Ericsson rattled investors.
The FTSEurofirst 300 <> index of top European shares
closed a roller-coaster session 0.4 percent lower at 1,192.24
points. On the week, the index has lost 2.5 percent; the index
has shed 27 percent since it peaked last July.
"I remain very bearish on stocks, even at current prices,"
said Christian Jimenez, president of IMENE Investment Partners
in Paris. "We're seeing retailers getting punished as
consumers' wallets are getting hit by high oil prices. They pay
more at the pump and they have less money to spend."
Investors piled into energy, metals and grains markets for
a second straight day, fleeing battered stock markets and the
plunging U.S. dollar.
Crude <CLQ8> for delivery in August rose 57 cents to settle
at $140.21 a barrel, a record settlement price in New York,
after hitting an intraday record high of $142.99.
U.S. light sweet crude oil <CLc1> rose $1.39 to $141.03.
The Reuters-Jefferies CRB Index <.CRB>, which tracks 19
commodity futures, was up 30 percent year-to-date after hitting
a new record high of 465.19 points.
"Fund money seems again to be leaving the imploding equity
markets and heading into commodities," said Edward Meir, an
energy and metals commentator at MF Global in New York.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
13/32 to yield 3.98 percent. The 30-year U.S. Treasury bond
<US30YT=RR> added more than 1 point to yield at 4.53 percent.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 0.27 percent at 72.297. Against the
yen, the dollar <JPY=> fell 0.59 percent at 106.14.
The euro <EUR=> gained 0.22 percent at $1.5787.
The Swiss franc rose after Russia's central bank said it
plans to increase the currency's share in its $558.7 billion
gold and foreign exchange reserves.
Earlier in Asia, Japanese stocks <> shed 2 percent to
a two-month closing low while speculation of an imminent
interest rate hike in China pushed local shares to a 16-month
trough.
The MSCI index of stocks in the Asia-Pacific region
<.MIAPJ0000PUS> outside of Japan fell 2.1 percent to a
three-month low.
Copper hit its highest level in nearly two months on
Friday, boosted by strong fundamentals and falling stocks.
(Reporting by Ellis Mnyandu, Steven C. Johnson and Chris
Reese in New York; Jane Merriman, Santosh Menon, George Matlock
and Raissa Kasolowsky in London and Blaise Robinson in Paris)
(Reporting by Herbert Lash. Editing by Richard Satran)
