(Adds close of U.S. markets)
* Global stocks reel on banking jitters; GM hits 53-yr low
* Oil hits record over $140 as Libya studies output cut
* Dollar falls broadly as euro sets record high versus yen
* Bonds rise as financial sector worries renew safety bid
By Herbert Lash
NEW YORK, June 26 (Reuters) - Wall Street stocks skidded to
one of the year's worst losses as oil surged over $140 for the
first time ever and swamped markets already sinking under the
weight of revived credit fears.
Concern mounted over more write-downs at major U.S. banks
as investment bank Goldman Sachs sent an alarming note to
clients about further losses. A separate Goldman note on the
auto industry's woes sent General Motors stock plunging to its
worst level in 53 years.
The dollar retreated broadly as investors discounted the
chance of a U.S. interest rate hike any time soon after the
Federal Reserve on Wednesday held rates at 2 percent. That
boosted the euro to a record high of 169.45 against the yen.
Oil prices surged nearly 4 percent to a record over $140 a
barrel after Libya said it was studying ways to cut output in
response to potential U.S. actions against producer countries.
Crude was boosted earlier in the day by the weak dollar and
comments by OPEC President Chakib Khelil who said prices could
rise as high as $170 this summer.
A broad rally in agricultural commodities, which have been
pummeled by the worst flooding in the U.S. heartland in 15
years, pushed corn prices to an all-time high as grains rallied
in tandem with oil and gold, and fed fears that inflation will
soon rage.
"The inflationary markets are running higher," said grains
analyst Don Roose of U.S. Commodities, referring to active
buying in the grain, gold and energy markets.
Gold ended nearly 4 percent higher as funds poured into
commodities due to tumbling stocks after oil surged and boosted
bullion's appeal as an alternative investment.
The blue-chip Dow slid 335 points to a 21-month low after
Goldman Sachs urged investors to sell bank and automaker
shares, fueling concern about the outlook for corporate
profits.
Investors found little to lift their spirits amid the
barrage of bearish news, and major stock indexes in Europe and
the United States fell more than 2 percent.
"The price of oil is now at $140 and there is real concern
that global growth is going to seriously slow down and that's
hitting all sectors," said Eddie Bakker, managing director of
equity sales and trading at Calyon Securities in New York.
Financial stocks plummeted after Goldman Sachs forecast
additional write-downs of $8.9 billion at Citigroup <C.N> and
$4.2 billion at Merrill Lynch & Co <MER.N>.
Goldman also put Citigroup <C.N> on its "conviction sell"
list, and a Sanford C. Bernstein analyst said Merrill will take
$3.5 billion in write-downs.
Shares of Citigroup <C.N> fell 6.3 percent and Merrill
Lynch & Co. <MER.N> fell 6.8 percent
GM <GM.N> sank 10.8 percent to lows last seen in 1955.
The Dow <> slid 358.41 points, or 3.03 percent, at
11,453.42. The Standard & Poor's 500 Index <.SPX> fell 38.74
points, or 2.93 percent, at 1,283.23. The Nasdaq Composite
Index <> was down 79.89 points, or 3.33 percent, at
2,321.37.
Banks also led European shares lower. Dutch-Belgian group
Fortis <FOR.BR> was the top percentage loser, sliding almost 19
percent after saying it would shore up its balance sheet with
measures worth more than 8 billion euros ($12.54 billion),
including issuing new shares.
Barclays <BARC.L> shed 5.8 percent, Credit Suisse <CSGN.VX>
fell 2 percent and Deutsche Bank <DBKGn.DE> slid 3.3 percent.
The FTSEurofirst 300 <> closed down 2.5 percent at
1,197.02 points in its worst single-day percentage fall since
mid-March.
The weaker dollar helped oil prices rebound, along with
Libya news and comments by the president of the Organization of
Petroleum Exporting Countries.
"I forecast prices probably between $150-$170 during this
summer. That will perhaps ease toward the end of the year,"
Chakib Khelil told France 24 television in an interview.
The euro strengthened because in contrast to the Fed's
pause, the European Central Bank has repeatedly said it may
lift rates in July to fight inflation,
"The dollar is on the ropes and has further to fall unless
the Fed can correct the market perception that U.S. rates are
on hold indefinitely," said Michael Woolfolk, senior currency
strategist at The Bank of New York Mellon.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
14/32 to yield 4.043 percent. The 30-year U.S. Treasury bond
<US30YT=RR> gained 22/32 to yield at 4.61 percent.
The euro <EUR=> was up 0.59 percent at $1.5761.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 0.60 percent at 72.47. Against the
yen, the dollar <JPY=> fell 1.04 percent at 106.71.
Gold <XAU=> last traded at $912.60/913.60 in New York.
U.S. crude <CLc1> settled up $5.09 at $139.64 a barrel,
after hitting an all-time high of $140.39 earlier, eclipsing
the previous record of $139.89 a barrel hit on June 16. London
Brent crude <LCOc1> settled up $5.50 at $139.83 a barrel.
"The primary reason bonds are doing so well are the
concerns over financials, banking shares are doing particularly
badly," said ABN AMRO strategist Harvinder Sian.
Overnight in Asia, stocks and government bonds mostly rose
after the Federal Reserve on Wednesday kept rates steady and
signaled it was in no hurry to raise them in the near term.
The MSCI index of stocks in the Asia-Pacific region
<.MSCIEF> outside of Japan rose 0.7 percent, while the pan-Asia
index gained 0.2 percent <.MIAS00000PUS>.
Japan's Nikkei share average <> closed slightly lower,
extending a losing streak to six days.
(Reporting by Walker Simon, Steven C. Johnson and Chris Reese
in New York; Ikuko Kao, Jane Merriman, Kirsten Donovan, Jan
Harvey and Patrizia Kokot in London)
(Reporting by Herbert Lash. Editing by Richard Satran)
