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: Quote, Profile, Research) 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.