Oil slips to 3-month low but global stocks slide further

By Herbert Lash

NEW YORK (Reuters) - Oil prices slid to a three-month low on Monday, and lower oil and metals prices dragged on stocks around the world, along with an increasingly pessimistic view of the global economy.

Crude tumbled more than $5 to below $120 a barrel as signs of increased OPEC output and an economic slowdown trumped concerns about supplies driven by a tropical storm in the Gulf of Mexico and Iran's nuclear program dispute with the West.

The sell-off in oil prices led the dollar higher against the yen on Monday, but demand versus the euro was capped as traders awaited a host of central bank meetings this week. The Federal Reserve, the Bank of England and the European Central Bank will all issue rate decisions.

The decline in oil briefly drove the Dow higher and helped the Nasdaq and S&P 500 pare losses, but worries that the housing slump could fuel further losses at financial companies helped drive all three indexes to close lower.

Another round of dreary U.S. and euro zone economic news helped boost demand for safe-haven government debt on both sides of the Atlantic. Gains, however, were limited ahead of the Fed's policy-setting meeting on Tuesday.

Fears that a U.S. housing slump will spawn further losses and compound the troubles facing the U.S. economy and elsewhere drove financial stocks lower in the United States and Europe.

"The pullback in oil helped, but when you strip away the backdrop, we're still faced with an anemic economy and tepid profits, and I'm not sure there's a real compelling story to jump on the equity bandwagon," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

The Dow Jones industrial average .DJI fell 42.17 points, or 0.37 percent, at 11,284.15. The Standard & Poor's 500 Index .SPX slid 11.30 points, or 0.90 percent, at 1,249.01. The Nasdaq Composite Index .IXIC shed 25.40 points, or 1.10 percent, at 2,285.56.

News that WCI Communities WCI.N , a U.S. builder of luxury homes whose business is concentrated in Florida, filed for bankruptcy protection, also unnerved investors.

Bank of America Corp (BAC.N) fell more than 2 percent, Citigroup (C.N) was off 0.2 percent and JPMorgan Chase (JPM.N) slid 1.5 percent.

The S&P financial index .GSPF fell 1.3 percent, while the Dow Jones home construction index .DJUSHB lost 1.7 percent.

CREDIT CRUNCH IN SPOTLIGHT

European shares fell for a third session in a row after results from HSBC (HSBA.L), Europe's largest bank, highlighted the credit crunch's impact on banks. A drop in metal prices sapped mining shares.

Shares in HSBC were among the largest individual drags on the European market after it said first-half profits fell 28 percent, in line with forecasts, and took a $14 billion hit on bad debts on U.S. home loans.

Despite strong growth in Asia and "reasonable" earnings, HSBC's results showed problems in the United States continue, said Henk Potts, a strategist at Barclays Stockbrokers.