CORRECTED - GLOBAL MARKETS-US stocks plunge on Paulson comments, oil falls

* U.S. stocks plunge after shift in U.S. bailout program

* U.S. crude futures drop to 21-month low under $56 barrel

* Government debt advances as stock losses spur safety bid

* Yen soars across the board, dollar to yen falls below 95 (Corrects to say "capital needs of both banks and non-bank financial institutions" in paragraph 2, instead of just "non-bank financial institutions")

By Herbert Lash

NEW YORK, Nov 12 (Reuters) - U.S. stocks plunged on Wednesday after a shift in how the U.S. government will use its $700 billion bailout fund fed uncertainty and oil prices slid to 21-month lows on fears of a deep global recession.

U.S. Treasury Secretary Henry Paulson said he was backing away from buying troubled mortgage assets and would focus on the capital needs of both banks and non-bank financial institutions.

Banking shares took the brunt of the government's shift in how to address a credit crisis whose genesis lies in the slumping U.S. housing market. Shares of Citigroup (C.N) fell below $10 for the first time since it became a public company.

The shift in government plans caught investors off-guard.

"A lot of clarity is missing," said Paul Nolte, director of investments at Hinsdale Associates in Hinsdale, Illinois.

"It's just a different direction, and every time that we hear about this, we're bailing somebody else out and we're throwing money in another direction without having a clear plan or objective in mind."

Paulson's comments also underscored the head winds the U.S. economy faces, adding to the slide in stocks and feeding a bid for such safe-haven assets as government debt and the yen.

The threat of deflation, which would hurt corporate profits, also slammed stocks and made risk-averse investors steady buyers of U.S. Treasuries.

Sterling tumbled to a six-year low against the dollar and a record trough against the euro after the Bank of England warned the British economy will shrink sharply next year. Its governor bolstered expectations of aggressive interest rate cuts.

The pound traded as low as $1.4898 GBP=, the weakest level since June 2002, and the U.S. dollar fell sharply against the yen as investors shunned riskier assets.

Oil fell more than 5 percent to less than $56 a barrel at one point after the U.S. government again chopped its forecast for global demand due to slowing economic growth around the world.