* U.S. slide 2 pct as credit worries slam financial shares
* Bonds rise; financial sector fears boost safe-haven bid
* Report of trimmed IMF growth forecasts weigh on markets
* Oil rebounds as concerns mount on Gulf of Mexico storm
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Aug 25 (Reuters) - U.S. stocks fell sharply on
Monday as persistent credit and global growth concerns pulled
equities down and led investors into safe-haven investments
like bonds.
The declining price of U.S. equities reduced demand for the
dollars to buy them and pushed investors into investments
perceived as less risky, such as the yen and government debt.
Pressuring the financial sector was a steep drop in shares
of American International Group Inc <AIG.N>, which skidded to a
13-year low after Credit Suisse cut its price target and
forecast a huge loss, mainly due to higher derivatives losses.
AIG fell more than 5 percent to $18.78.
Lehman Brothers <LEH.N> also contributed to the negative
tone, falling nearly 7 percent after a top South Korean
regulator expressed concern about state-run Korea Development
Bank's interest in buying a global bank. Talk of a white knight
buyout of the mortgage-hit bank boosted shares last week.
The Dow Jones industrial average <> fell 241.81 points,
or 2.08 percent, at 11,386.25. The Standard & Poor's 500 Index
<.SPX> slipped 25.36 points, or 1.96 percent, at 1,266.84. The
Nasdaq Composite Index <> shed 49.12 points, or 2.03
percent, at 2,365.59.
Crude prices edged higher in thin, seesaw trade as Tropical
Storm Gustav formed in the Caribbean, stirring concerns that it
could disrupt the high concentration of U.S. oil and natural
gas production that comes from the Gulf of Mexico.
Investors flocking to government debt pushed benchmark
yields on U.S. Treasuries to 3-month lows while bund futures in
Europe posted their biggest one-day rise in a month. Bond
prices and yields move inversely to each other.
The dollar dropped against the yen, pressured by sharp
losses in the U.S. stocks the nagging credit worries prompted
investors to pare risky trades. But it gained versus the euro.
The dollar gained against major currencies, with the U.S.
Dollar Index <.DXY> up 0.05 percent at 76.82. Against the yen,
the dollar <JPY=> fell 0.63 percent at 109.32.
The euro <EUR=> fell 0.26 percent at $1.4752.
The British pound hit two-year lows against the dollar at
one point, with stalled UK growth seen as another example of
growing economic malaise outside the United States.
"Ongoing credit angst is giving us some flight-to-quality
trade, but trading is pretty thin," said Kim Rupert, managing
director of global fixed income analysis at Action Economics
LLC in San Francisco.
Credit concerns hounded financial stocks on both sides of
the Atlantic and worries about global growth hit technology
stocks and industrials.
The Dow and Nasdaq fell slightly more than 2 percent, while
the broad S&P 500 fell almost as much. The declines erased
Friday's gains, although traders said a U.K. bank holiday and
thin, end-of-summer trading may have exaggerated the downturn.
Among industrial conglomerates with big overseas exposure,
Caterpillar <CAT.N> shed 2.35 percent. The International
Monetary Fund trimmed its forecasts for 2008 and 2009 world
economic growth in a note prepared for the meeting of the Group
of 20 nations, a G20 finance official told Reuters.
European shares also fell on persistent financial sector
worries, with Spanish bank Santander <SAN.MC> and Dutch-Belgian
financial group Fortis <FOR.AS> both dropping 2.4 percent.
The FTSEurofirst 300 <> index of top European shares
ended 0.56 percent lower at 1,169.17 points.
Lower crude oil prices <CLc1><LCOc1> extended the previous
session's steep slide in energy majors. Royal Dutch Shell
<RDSa.AS> fell 1.8 percent and Total <TOTF.PA> 1.4 percent.
The IMF's lowered economic growth projections signaled
weaker demand and hit shares in steel maker ArcelorMittal
<MTP.PA>, down 2.2 percent, and engineering conglomerate
Siemens <SIEGn.DE>, off 1.6 percent, among European big caps.
Analysts said European stocks might struggle in the near
term as the global economic outlook remains uncertain.
"The markets will remain lacklustre," said Franz Wenzel,
strategist at AXA Investment Managers in Paris. "People are
nervous and hardly any risky money is at work," he said.
Even as the dollar rallied this month, concerns about U.S.
mortgage finance companies Fannie Mae <FNM.N> and Freddie Mac
<FRE.N> have kept the U.S. currency's gains in check.
Gustav was expected to strengthen and bring hurricane
conditions to parts of the Dominican Republic and Haiti within
24 hours. Four tracking forecasts show it heading toward
Guatemala, Belize or the Yucatan Peninsula; two show it heading
toward the Gulf of Mexico.
U.S. crude <CLc1> settled up 52 cents at $115.11 a barrel
after falling more than 5.4 percent on Friday in the largest
one-day slide since Dec. 27, 2004. Brent crude <LCOc1> gained
11 cents to settle at $114.03 a barrel.
"The session was lackluster and was looking for
direction when news of the upgrade of Gustav came in and all of
a sudden prices rose," said Gene McGillian, analyst for
Tradition Energy in Stamford, Connecticut.
Gold fell in quiet trading as a dollar rise against the
euro prompted profit-taking.
December gold futures <GCZ8> settled down $7.80 at $825.70
an ounce in New York.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
22/32 to yield 3.79 percent. The 30-year U.S. Treasury
bond<US30YT=RR> added 35/32 to yield 4.40 percent.
The dollar's earlier rally sparked Asian stocks to rebound
from a two-year low as the drop in oil prices back below $120 a
barrel lifted shares of companies sensitive to energy prices.
Japan's Nikkei share average <> ended up 1.7 percent,
and MSCI's Asia-Pacific ex-Japan index <.MIAJP00000PUS> rose
1.2 percent.
(Reporting by Steven C. Johnson, Kristina Cooke, Matthew
Robinson, Chris Reese, Nick Olivari and Frank Tang in New York
and Ian Chua in London and Peter Starck in Frankfurt)
(Reporting by Herbert Lash. Editing by Richard Satran)
