Credit crisis fears spark global stock rout

By Herbert Lash

NEW YORK (Reuters) - Fears that the credit crisis will not be contained sparked panic selling across global stock markets on Monday and sent crude oil prices plunging as investors rushed for the safety of government bonds and gold.

European shares posted their worst day on record and the Dow slipped below 10,000 points for the first time since October 2004 as markets reeled on news of the growing toll from the credit crisis and widespread fears of a looming global recession.

The rescue of two big European banks and a decision by several European governments to guarantee bank deposits in emergency moves to prop up investor confidence triggered the wave of selling, spreading from Europe to Asia before engulfing the United States and Latin America later in the day.

The U.S. stock market cut almost half its losses in the last hour of the session, as traders speculated the sell-off might trigger a coordinated global response to thaw credit markets. The Dow, however, still closed down at a four-year low.

In both Russia and Brazil, selling was so heavy that stock exchange officials halted trading. Russia's benchmark RTS index closed down 19.1 percent, its biggest daily percentage fall in its 13-year history. The Bovespa index in Brazil fell 15 percent before paring losses.

"We're clearly in the panic zone now. We've tipped over from bear market to panic," said John Schloegel, vice president of investment strategies for Capital Cities Asset Management in Austin, Texas.

Contagion from the credit crisis spread in Europe, gumming up interbank money markets as banks remained reluctant to lend to each other and investors fled to the safety of bonds.

Euro zone government debt prices shot to 6-1/2 month highs and U.S. Treasuries surged amid mounting worries about the impact of the world's deepest financial crisis in 80 years.

Fears of a global slowdown hammered prices for industrial metals, with benchmark copper tumbling 7.3 percent, and aluminum and zinc prices falling by almost 5 percent.

"There's a huge concern right now that we are seeing a global recession," said David Meger, a metals analyst with Chicago-based Alaron Trading.

Crude oil prices fell below $88 a barrel to an eight-month low on fears of a global slowdown. Gold futures jumped more than 5 percent at one point and the yen soared across the board amid heavy selling of risky positions.

The yen was on track for its largest one-day gain versus the dollar since the Asian crisis in 1998, and its best day against the euro since the launch of the single European currency in 1999.

"What's been driving the market, more broadly speaking, over the past couple of weeks, has been concern about the disintegration in the European financial system," said Todd Elmer, a currency strategist at Citigroup in New York.

The Dow had shed more than 700 points and the benchmark S&P 500 index was on the verge of sliding below the 1,000 mark before losses were trimmed in late trade.

The Dow Jones industrial average closed down 369.88 points, or 3.58 percent, at 9,955.50. The Standard & Poor's 500 Index shed 42.38 points, or 3.86 percent, at 1,056.85. The Nasdaq Composite Index fell 84.43 points, or 4.34 percent, at 1,862.96.