GLOBAL MARKETS-Stocks plunge despite emergency Fed rate cut

By Pedro Nicolaci da Costa

NEW YORK, Jan 22 (Reuters) Wall Street stocks plunged at the open, extending a global rout as panic reached new heights despite the Federal Reserve's biggest emergency interest rate cut in more than two decades.

The U.S. central bank sought to placate market worries and prevent a recession by slashing interest rates by 0.75 percentage point -- the first cut between regularly scheduled meetings since September 2001.

But investors appeared to think the biggest single Fed shift in rates since 1994 was not enough to prevent a worsening U.S. economic outlook from forcing a steep retrenchment in corporate profits.

The Dow Jones industrial average .DJI was down more 430 points, or 3.5 percent, while the S&P 500 .SPX fell 47 points, or 3.6 percent. Bonds jumped sharply, with two-year notes US2YT=RR falling to 2.08 percent, their lowest in nearly four years.

These moves followed mounting losses overseas. Hong Kong's Hang Seng index .HSI lost $321 billion of its value in just the past two days. Developing countries' stock markets were also experiencing dramatic declines.

"There's so much panic out there right now, I'm not sure it (the Fed rate cut) will help," Kim Rupert, managing director of global fixed-income at Action Economics in San Francisco.

Traders expect the Fed to cut rates even further at its next scheduled policy meeting next week. Tuesday's cut brought the benchmark federal funds rate down to 3.50 percent.

These expectations led to a big drop in the dollar against the euro EUR=, as the prospect of much lower rates in the United States made European assets look even more attractive.

"Current events remain solidly dollar-negative," said Alan Ruskin, chief international strategist at RBS Greenwich.

"Plainly, the Fed realized that to try stay ahead of the market they had to act immediately. It smacks of panic."

Along with the euro, European equities recovered ground following the Fed's decision. The FTSEurofirst 300 index .FTEU3 was up 0.3 percent at 1,283.52, while London's FTSE 100 was up 1 percent.

In energy markets, oil cut some of its losses to trade around $89 a barrel on Tueday after the Fed's action. U.S. crude CLc1 was trading at $89.08, $1.52 down from Friday's settlement. (Reporting by Pedro Nicolaci da Costa; Editing by Jonathan Oatis)