* Stocks plunge as European bank actions stir new fears
* Yen soars worldwide, dollar at 2-1/2-year trough vs yen
* Bonds gain on safety bid as global equity markets plunge
* Oil falls below $88 a barrel on slowing demand outlook
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Oct 6 (Reuters) - Fears that the credit crisis
will not be contained sparked panic selling across global stock
markets on Monday and sent crude oil prices plunging as
investors rushed for the safety of government bonds and gold.
European shares posted their worst day on record and the
Dow slipped below 10,000 points for the first time since
October 2004 as markets reeled on news of the growing toll from
the credit crisis and widespread fears of a looming global
recession.
The rescue of two big European banks and a decision by
several European governments to guarantee bank deposits in
emergency moves to prop up investor confidence triggered the
wave of selling, spreading from Europe to Asia before engulfing
the United States and Latin America later in the day.
The U.S. stock market cut almost half its losses in the
last hour of the session, as traders speculated the sell-off
might trigger a coordinated global response to thaw credit
markets. The Dow, however, still closed down at a four-year
low.
In both Russia and Brazil, selling was so heavy that stock
exchange officials halted trading. Russia's benchmark RTS index
<> closed down 19.1 percent, its biggest daily percentage
fall in its 13-year history. The Bovespa index <> in
Brazil fell 15 percent before paring losses.
"We're clearly in the panic zone now. We've tipped over
from bear market to panic," said John Schloegel, vice president
of investment strategies for Capital Cities Asset Management in
Austin, Texas.
Contagion from the credit crisis spread in Europe, gumming
up interbank money markets as banks remained reluctant to lend
to each other and investors fled to the safety of bonds.
Euro zone government debt prices shot to 6-1/2 month highs
and U.S. Treasuries surged amid mounting worries about the
impact of the world's deepest financial crisis in 80 years.
Fears of a global slowdown hammered prices for industrial
metals, with benchmark copper tumbling 7.3 percent, and
aluminum and zinc prices falling by almost 5 percent.
"There's a huge concern right now that we are seeing a
global recession," said David Meger, a metals analyst with
Chicago-based Alaron Trading.
Crude oil prices fell below $88 a barrel to an eight-month
low on fears of a global slowdown. Gold futures jumped more
than 5 percent at one point and the yen soared across the board
amid heavy selling of risky positions.
The yen was on track for its largest one-day gain versus
the dollar since the Asian crisis in 1998, and its best day
against the euro since the launch of the single European
currency in 1999.
"What's been driving the market, more broadly speaking,
over the past couple of weeks, has been concern about the
disintegration in the European financial system," said Todd
Elmer, a currency strategist at Citigroup in New York.
The Dow had shed more than 700 points and the benchmark S&P
500 index was on the verge of sliding below the 1,000 mark
before losses were trimmed in late trade.
The Dow Jones industrial average <> closed down 369.88
points, or 3.58 percent, at 9,955.50. The Standard & Poor's 500
Index <.SPX> shed 42.38 points, or 3.86 percent, at 1,056.85.
The Nasdaq Composite Index <> fell 84.43 points, or 4.34
percent, at 1,862.96.
It was the S&P 500's lowest close since December 2003.
The S&P financial sector sub-index<.GSPF>, which had fallen
more than 8 percent, closed down 3.9 percent, and the S&P
energy index <.GSPE> closed down 3.6 percent after earlier
falling about 12 percent.
In Europe, the pan-European FTSEurofirst 300 index <>
fell 7.75 percent to close at 1,004.90 points, its biggest
percentage fall ever and eclipsing the 6.3 percent fall
suffered on Sept. 11, 2001, during the U.S. terrorist attacks.
Banks and commodity shares took most points off the index,
with Royal Bank of Scotland <RBS.L> -- which suffered a credit
rating cut from Standard & Poor's -- sliding 20 percent,
Barclays <BARC.L> losing 14.7 percent and UBS <UBSN.VX> falling
12.8 percent.
Valerie Plagnol, chief strategist at CM-CIC Securities in
Paris, called the day's sell-off a "stampede."
Nicole Elliott, a technical analyst with Mizuho Securities
in London, said it was a free-fall with no reason to buy
equities.
"The outlook is still very bearish and we are nowhere near
the bottom," she said.
Ireland moved first to offer bank deposit guarantees,
followed by four more European governments as the region's
governments struggled to shield banks and bank depositors and
to calm growing fears.
German lender Hypo Real Estate <HRXG.DE> became the latest
in a string of banks in Europe that had to be rescued, spooking
investors and sending the euro skidding to a 13-month low
against the dollar.
The troubled Belgian-Dutch financial group Fortis <FOR.BR>
was rescued in a deal with France's BNP Paribas <BNPP.PA>.
Although the cost of borrowing overnight funds on
international money markets remained close to central banks'
targets, thanks to continued liquidity injections, lending was
almost nonexistent across all other maturities.
The benchmark 10-year U.S. Treasury note <US10YT=RR> gained
40/32 to yield 3.45 percent, and the 2-year U.S. Treasury
note<US2YT=RR> rose 12/32 to yield 1.39 percent.
The U.S. dollar jumped to a 13-month high against the euro
and the yen rallied broadly. Sentiment soured sharply against
the euro after leaders of Europe's four biggest economies
decided against a coordinated plan at a weekend summit.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.68 percent at 81.462.
The euro <EUR=> fell 1.77 percent at $1.3525, and against
the yen, the dollar <JPY=> fell 3.24 percent at 101.89.
U.S. crude <CLc1> settled down $6.07 at $87.81 a barrel
after hitting an eight-month low of $87.56. London Brent crude
<LCOc1> fell $6.57 to settle at $83.68 a barrel.
December gold futures <GCZ8> settled up $33 at $866.20 an
ounce in New York.
Asian stocks dropped overnight by about 5 percent and the
yen surged to a two-year high against the euro as investors
doubted the U.S. and European response to the financial crisis
could prevent a deeper slump in the global economy.
Japan's Nikkei share average <> slumped 4.25 percent
to mark its lowest close since February 2004. MSCI's index of
Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> slid 6.6
percent to the lowest since December 2005.
(Reporting by Ellis Mnyandu, Chris Reese, Wanfeng Zhou and
Frank Tang in New York and Jamie McGeever, Jan Harvey, Emelia
Sithole-Matarise, Jane Merriman, Joe Brock and George Matlock
in London; Writing by Herbert Lash; Editing by Leslie Adler)
