GLOBAL MARKETS-Investors seek safety as dollar, commodities fall

(Adds opening of U.S. markets, byline; dateline previous LONDON)

By Herbert Lash

NEW YORK, March 19 (Reuters) - Persistent worries about a U.S. recession and the health of the economy drove investors into the safety of government debt on Wednesday and helped pull down the dollar and commodities prices.

Global stocks sagged even as financial shares rose after better-than-expected results from yet another Wall Street bank and a renewed effort to shore up the flagging U.S. housing sector.

In Europe, shares were stung after a profit warning by Sony Ericsson and Deutsche Telekom's (DTEGn.DE) outlook disappointed markets, while mining stocks fell.

Oil prices slumped almost 5 percent amid signs of falling demand and concerns about a U.S.-led recession, which temporarily assuaged bond investors' jitters about inflation and helped longer-maturity U.S. government debt.

U.S. gold futures plunged 5 percent to a three-week low, pummeled by full-scale fund liquidation and the Federal Reserve's smaller-than-expected interest rate cut on Tuesday, which weighed heavily on the dollar.

Market sentiment on the greenback remained decidedly negative as U.S. interest rates are expected to head lower even after a three-quarters of a percentage point cut by the Federal Reserve to 2.25 percent.

"It's still a very dollar-negative environment as the Fed is expected to cut to about 1.50 percent by mid-year and this leaves the larger dollar sell-off trend still in place," said David Powell, a currency strategist, at IDEAglobal in New York.

The Dow Jones industrial average .DJI was down 57.07 points, or 0.46 percent, at 12,335.59. The Standard & Poor's 500 Index .SPX was down 4.87 points, or 0.37 percent, at 1,325.87. The Nasdaq Composite Index .IXIC was down 12.42 points, or 0.55 percent, at 2,255.84.

FINANCE SHARES UP, BUT OIL WEIGHS

Stocks rallied earlier in the day on unexpectedly strong earnings from Morgan Stanley (MS.N) and after the regulator of top U.S. home finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N) eased their capital requirements to pump as much as $200 billion in immediate cash into the stressed mortgage markets.

The Office of Federal Housing Enterprise Oversight said it was reducing to 20 percent from 30 percent the amount of extra capital Fannie and Freddie are required to hold.

The encouraging news was offset by declines in the energy sector.

Oil prices CLc1 dropped close to $5 a barrel, weighing on shares of major energy companies, including Exxon Mobile (XOM.N) and Chevron Corp (CVX.N).

"These moves that we see in the aftermath of the FOMC statement, the Fannie and Freddie news are really temporary and pullbacks do not imply a sustained dollar rebound," Powell said.