TREASURIES-Prices soar as stock slide spurs safety bids

* Credit jitters feed bid for safe-haven Treasuries

* European bank turmoil gave Treasuries an early boost

* Oil plunge, global slowdown argue for low inflation (Updates comments, prices, changes byline)

By Ellen Freilich

NEW YORK, Oct 6 (Reuters) - U.S. Treasuries soared on Monday as worries about a global credit crisis and a slow economy slammed stock markets around the world and sent investors scurrying for shelter in low-risk government debt .

The conviction that the credit crisis would drag the global economy into recession and cripple profits pushed U.S. stocks sharply lower, with the Dow finishing below 10,000 for the first time in four years.

The U.S. stock market retreat followed sharp drops in Asian stock markets, and an 8 percent fall in major European equity indexes.

Investors' flight to safety pushed the benchmark 10-year Treasury note up more than a full point in price.

"We're dealing with a total lack of confidence, not only in terms of banks' willingness to lend to each other, but also in the ability of governments worldwide to prevent a recession," said William Sullivan, chief economist at JVB Financial Group in Boca Raton, Florida.

"Even though President Bush signed the rescue package, lending rates remain elevated," Sullivan said. "That suggests that many firms still are having difficulty getting access to credit -- a real negative for the economic outlook."

The Dow Jones industrial average .DJI fell 3.58 percent, the broad Standard & Poor's 500 Index .SPX slid 3.85 percent and the Nasdaq Composite Index .IXIC dropped 4.34 percent.

"Investors are disappointed that the Wall Street rescue plan is not yet helping to unfreeze the money markets and did not address the cause of the problem: mortgage foreclosures," said Cary Leahey, economist at Decision Economics in New York.

With the U.S. bank rescue package passed, investors also focused on recently released weak economic data, culminating with Friday's weak U.S. employment report.

"A string of economic indicators capped by a dismal employment report suggest that the economy hit a brick wall in September and markets are digesting the idea that what once looked as if it would be a mild recession, now could be long and deep," Leahey said.

Joining that reassessment, some economists cut their near-term U.S. growth estimates.

"We sharply marked down our estimate of current quarter real GDP growth to show a 2 percent decline and lowered our forecast for full year 2009 growth by 1 percentage point to zero," said Deutsche Bank Securities' chief U.S. economist, Joseph LaVorgna, in New York, who expects the unemployment rate to rise above 7 percent by the second half of next year.