* Stocks plunge on renewed fears of a global slowdown
* Oil prices fall below $67 a barrel to 16-month lows
* Assets in emerging markets hit hard by investor flight
* Dollar hits 2-year high, yen 4-1/2-year high versus euro
* Bonds up as stocks fall on economic fears, weak earnings
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Oct 22 (Reuters) - The crisis that has stalked
U.S. and European financial markets for a year slammed the
developing world on Wednesday, knocking stock and commodity
prices to multi-year lows and igniting greater fears of a
global recession.
U.S. stocks followed European shares sharply lower, with a
6 percent slide in the benchmark S&P 500 pushing it below the
900 mark for the first time since April 2003. The Dow shed 514
points as bleak corporate outlooks sparked the sell-off on Wall
Street.
The Reuters-Jefferies CRB index <.CRB>, a global benchmark
of 19 commodities, sank to four-year lows on fears a worldwide
recession will slash capital flows to emerging markets and cut
commodity export revenue used to balance government budgets.
Adding to the sharp downward pressure on commodities was a
7.5 percent drop in crude oil prices after rising U.S. fuel
inventories added to signs that a global economic slowdown has
dragged down demand in the United States, the world's biggest
energy consumer.
In another sign of a dismal outlook for global economic
prospects the price of copper, a major industrial metal, dove
to a three-year low.
The rush out of emerging markets wreaked havoc on
currencies in the developing world, marking a dramatic shift in
where investors see economic duress.
"The funding crisis shifted from the United States to
European banks and onto emerging market corporates, and that is
putting a lot of pressure on emerging market currencies," said
Michael Hartnett, chief emerging markets equity strategist at
Merrill Lynch in New York.
While a year ago many investors dreamed of a "decoupling"
of the developing world from the U.S. economic engine, the rout
was a stark sign of how fast and brutal the financial crisis
can spread.
Hungary raised interest rates to defend its currency, which
has slumped over worries over the health of the country's
banking system and the ability to finance its large external
debt. Argentina moved to nationalize its private pension system
and six countries in the European region either have sought
help from the International Monetary Fund or are in IMF talks.
Shares of Santander <SAN.MC>, the euro zone's biggest bank
which has a unit in Argentina, tumbled 9.9 percent. Santander's
big Spanish rival, BBVA <BBVA.MC>, which runs one of the funds
that would be nationalized, lost 9.1 percent.
"The crisis has moved up in scale, from companies to
countries, and this is a logical progression of the same
theme," said Fortis strategist Philippe Gijsels in Brussels.
"Everybody is deleveraging, and as the water level goes
down, the rocks are more apparent," he said. "The banks are
being hit by fears that countries could start to default and
quite a lot of bad loans will emerge."
Argentina's Merval index <> slumped 10.1 percent,
extending an 11 percent slide on Tuesday, on the government's
bill to take over private pensions. The Merval on Wednesday
slid below the symbolic 1,000-point level for the first time in
four years.
The dollar rose to a five-year high against sterling after
Bank of England Governor Mervyn King said the British economy
was probably entering its first recession in 16 years, and the
road to stability was still not in sight.
Worries about the health of the global economy boosted
demand for safer assets like government debt.
Wall Street also reeled on lower corporate earnings and
lowered outlooks amid expectations of slower growth.
The Dow Jones industrial average <> closed down 514.45
points, or 5.69 percent, at 8,519.21. The Standard & Poor's 500
Index <.SPX> fell 58.27 points, or 6.10 percent, at 896.78. The
Nasdaq Composite Index <> slid 80.93 points, or 4.77
percent, at 1,615.75.
Exxon Mobil was the top drag on the Dow, down 9.7 percent.
Drug maker Merck & Co <MRK.N> tempered its long-range
earnings outlook, and ConocoPhilips <COP.N>, the third largest
U.S. oil company, said exploration and production output would
be below year-ago levels in 2008.
Merck slid 6.5 percent and Conoco fell 9.1 percent.
Wachovia Corp <WB.N>, which is being bought by Wells Fargo
& Co <WFC.N>, posted a third-quarter loss of $23.9 billion, a
record quarterly loss for a bank during the credit crisis. Its
shares fell 6.2 percent
European shares slumped, led by bank and energy stocks.
The FTSEurofirst 300 <> index of top European shares
ended down 5.4 percent at 873.90 points.
Interbank borrowing costs mostly fell, with further steep
falls in dollar rates and spreads indicating that the flood of
liquidity pumped into the banking systems in recent weeks is
easing money market constraints.
But recession fears, and worries over emerging markets,
held center stage.
"You have two variables going in opposite directions. You
are seeing credit risks heading lower. But people are not
feeling good about the world, and the focus is shifting there,"
said Eric Lascelles, chief economics and rates strategist at TD
Securities in Toronto.
The benchmark 10-year U.S. Treasury note <US10YT=RR> gained
37/32 in price to yield 3.60 percent. The 2-year U.S. Treasury
note <US2YT=RR> rose 6/32 in price to yield 1.52 percent.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 1.13 percent at 85.375. Against the yen,
the dollar <JPY=> fell 2.53 percent at 97.81.
The euro <EUR=> fell 1.46 percent at $1.2866.
Oil fell to a 16-month low below $67 a barrel. Gloom about
the world's economic outlook could limit the impact of any oil
supply cuts that the Organization of Petroleum Exporting
Countries might agree to on Friday.
"The outlook for crude is lower prices and I imagine OPEC's
reductions won't be effective to prevent our seeing $60 oil,"
said Joseph Arsenio, managing director of Arsenio Capital
Management in Larkspur, California.
U.S. crude <CLc1> settled down $5.43 at $66.75 a barrel,
after earlier touching $66.20, its lowest since June 14, 2007.
London Brent crude <LCOc1> settled $5.20 lower at $64.52 a
barrel.
Oil has plunged more than 50 percent from a record peak
above $147 set in July as the financial crisis cuts energy
demand and expectatations.
The Reuters/Jefferies CRB Index <.CRB> was down 12.56
points, or 4.51 percent, at 266.14.
In Asia, stocks slumped, with Japan's Nikkei down 6.8
percent as Sony Corp <6758.T> and other exporters fell after
the yen rose against the euro. Hong Kong shares slid 4.3
percent to a three-year low.
(Reporting by Leah Schnurr, Lucia Mutikani, Richard Leong and
Daniel Bases in New York and Jamie McGeever, Jane Merriman,
Sitaraman Shankar, Emelia Sithole-Matarise in London; Writing
by Herbert Lash; Editing by Leslie Adler)
