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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.
It was the S&P 500's lowest close since December 2003.
The S&P financial sector sub-index, which had fallen more than 8 percent, closed down 3.9 percent, and the S&P energy index closed down 3.6 percent after earlier falling about 12 percent.
In Europe, the pan-European FTSEurofirst 300 index fell 7.75 percent to close at 1,004.90 points, its biggest percentage fall ever and eclipsing the 6.3 percent fall suffered on September 11, 2001, during the U.S. terrorist attacks.
Banks and commodity shares took most points off the index, with Royal Bank of Scotland -- which suffered a credit rating cut from Standard & Poor's -- sliding 20 percent, Barclays losing 14.7 percent and UBS falling 12.8 percent.
Valerie Plagnol, chief strategist at CM-CIC Securities in Paris, called the day's sell-off a "stampede."
Nicole Elliott, a technical analyst with Mizuho Securities in London, said it was a free-fall with no reason to buy equities.
"The outlook is still very bearish and we are nowhere near the bottom," she said.
Ireland moved first to offer bank deposit guarantees, followed by four more European governments as the region's governments struggled to shield banks and bank depositors and to calm growing fears.
German lender Hypo Real Estate became the latest in a string of banks in Europe that had to be rescued, spooking investors and sending the euro skidding to a 13-month low against the dollar.
The troubled Belgian-Dutch financial group Fortis was rescued in a deal with France's BNP Paribas.
Although the cost of borrowing overnight funds on international money markets remained close to central banks' targets, thanks to continued liquidity injections, lending was almost nonexistent across all other maturities.
The benchmark 10-year U.S. Treasury note gained 40/32 to yield 3.45 percent, and the 2-year U.S. Treasury note rose 12/32 to yield 1.39 percent.
The U.S. dollar jumped to a 13-month high against the euro and the yen rallied broadly. Sentiment soured sharply against the euro after leaders of Europe's four biggest economies decided against a coordinated plan at a weekend summit.
The dollar rose against a basket of major currencies, with the U.S. Dollar Index up 0.68 percent at 81.462.
The euro fell 1.77 percent at $1.3525, and against the yen, the dollar fell 3.24 percent at 101.89.
U.S. crude settled down $6.07 at $87.81 a barrel after hitting an eight-month low of $87.56. London Brent crude fell $6.57 to settle at $83.68 a barrel.
December gold futures settled up $33 at $866.20 an ounce in New York.
Asian stocks dropped overnight by about 5 percent and the yen surged to a two-year high against the euro as investors doubted the U.S. and European response to the financial crisis could prevent a deeper slump in the global economy.
Japan's Nikkei share average slumped 4.25 percent to mark its lowest close since February 2004. MSCI's index of Asia-Pacific stocks outside Japan slid 6.6 percent to the lowest since December 2005.
Reporting by Ellis Mnyandu, Chris Reese, Wanfeng Zhou and Frank Tang in New York and Jamie McGeever, Jan Harvey, Emelia Sithole-Matarise, Jane Merriman, Joe Brock and George Matlock in London; Writing by Herbert Lash; Editing by Leslie Adler