* Global stocks in rout as AIG, HSBC unnerve investors
* Financial sector sentiment worsens on AIG record loss
* Dollar index hits 3-year high as investors seek safety
* Oil drops 10 pct, government debt up in safe-haven bid
(Adds close of European markets)
By Herbert Lash
NEW YORK, March 2 (Reuters) - Global stocks plumbed new
multi-year lows on Monday after AIG's record $61.7 billion
quarterly loss and an $18.1 billion capital request by HSBC
slammed financial markets, sending the dollar to near
three-year highs and government debt up as investors sought
safe havens.
Oil prices plunged 10 percent as the deteriorating world
economy threatened to cut further into fuel consumption.
Insurer American International Group's <AIG.N> quarterly
loss, the largest in U.S. corporate history, heightened worries
about the health of the global financial system and boosted the
appeal of government debt and the dollar as low-risk havens.
For details, see [].
The worldwide rout in equity markets pushed the Dow and S&P
500 stock indexes below key levels, while the FTSEurofirst 300
<> index of leading European shares ended a whisker away
from a lifetime low.
The latest bailout of AIG, which lost a total of $99.29
billion last year, unnerved investors who have been seeking
assurances that the credit crisis that began in mid-2007 is
finally abating. The worsening global economy has only
exacerbated sentiment.
"The weight of the evidence is that we're still in a very
risky condition in the general economy, and so we're going to
new lows," said Joseph Battipaglia, market strategist for
Stifel Nicolaus in Yardley, Pennsylvania.
"You can conclude there is a deteriorating confidence in
the government's ability to stem the financial crisis -- plain
and simple."
The decision by HSBC, Europe's biggest bank, to raise funds
via a rights issue to help it overcome big losses contributed
to fears that the downward trend is picking up pace.
Stocks sold off worldwide. European shares closed down 5
percent and Asian stocks fell about 4 percent.
U.S. stocks fell 4 percent or more as the Dow closed under
the 7,000 mark for the the first time since May 1997 and the
S&P 500 slid below 700, before closing slightly higher.
[]
Global stocks, as measured by MSCI's all-country world
equity index <.MIWD00000PUS>, fell almost 5 percent to an
almost six-year low.
All 30 components of the Dow closed in the red, and only
seven stocks in the S&P 500 rose. Declining shares outnumbered
advancing shares by more than 15 to 1 among the 3,168 issues
that traded on the New York Stock Exchange, and more than one
out of every five of those issues fell to 52-week lows.
Analysts said the news reaffirmed suspicion that more
turmoil lies ahead, spurring investors to sell stocks for
safer, dollar-denominated alternatives such as Treasuries.
"This is just creating an overall environment where if
things get worse at AIG, we could see further write-downs and
more problems in the financial sector," said Mark Frey, head of
FX trading at global payments dealer Custom House in Victoria,
British Columbia.
The Dow Jones industrial average <> closed down 299.64
points, or 4.24 percent, at 6,763.29. The Standard & Poor's 500
Index <.SPX> fell 34.27 points, or 4.66 percent, at 700.82. The
Nasdaq Composite Index <> slid 54.99 points, or 3.99
percent, at 1,322.85.
AIG <AIG.N> closed flat at 42 cents a share in New York and
HSBC fell 18.8 percent in London.
The FTSEurofirst 300 <> fell 5.2 percent to 682.31,
just shy of a lifetime low of 681.17 hit in March 2003.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
38/32 in price to yield 2.88 percent. The 2-year U.S. Treasury
note <US2YT=RR> added 5/32 in price to yield 0.90 percent.
Energy stocks fell after crude prices <CLc1> tumbled 10
percent to settle just above $40 a barrel as the deteriorating
world economy outweighed OPEC's strong compliance with supply
curbs. []
U.S. crude <CLc1> settled down $4.61 to $40.15 a barrel,
while London Brent crude <LCOc1> fell $4.14 to settle at $42.21
a barrel.
European Union leaders' rejection of a mass bailout for
Eastern Europe pushed the euro below $1.26, along with a survey
showing euro zone manufacturers had their worst month in 12
years. [].
The euro <EUR=> fell 0.69 percent at $1.2581, and against
the yen, the dollar <JPY=> slipped 0.29 percent at 97.24.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.79 percent at 88.861.
[]
Gold dropped after rising earlier. Heavy losses in equity
markets triggered profit-taking after the metal failed to climb
further above $1,000 an ounce last week.
U.S. gold futures for April delivery <GCJ9> settled down
$2.50 at $940.00 an ounce in New York.
(Reporting by Leah Schnurr, Deepa Seetharaman, Matthew
Robinson, Gertrude Chavez-Dreyfuss and John Parry in New York,
Atul Prakash, Naomi Tajitsu, Joanne Frearson and Jan Harvey in
London; writing by Herbert Lash; Editing by Leslie Adler)
