LONDON World stocks hit 5-1/2 year lows and oil hit 22-month troughs on Thursday on worries over bank giant Citigroup and U.S. automakers, though they trimmed losses on an increased Saudi stake in Citi and a Swiss rate cut.
Citigroup Inc shares tumbled to a 13-year low on Wednesday as investors questioned the survival prospects of the U.S. banking giant.
But the shares rose in pre-market trading on Thursday after Saudi Prince Alwaleed said he had boosted his stake in Citigroup back to 5 percent from less than 4 percent.
The Swiss National Bank cut rates by 100 basis points on Thursday to a target range for 3-month Swiss franc Libor of 0.5-1.5 percent, joining central banks elsewhere who have cut rates sharply to boost their economies.
"This move clearly signals that the SNB are concerned about deflationary risks. This joins them with the Fed and BoE who have also expressed similar concerns in recent weeks," said UBS analysts in a client note.
The MSCI world equity index fell to 197.72, its lowest since May 2003, and was trading at 198.52 at 7:50 a.m. EST, down 2.04 percent on the day.
U.S. stock futures were down 0.79 percent and the FTSEurofirst 300 index of leading European shares was down 2.5 percent, after earlier hitting a 5-1/2 year low.
U.S. automakers were also weighing on equities, with at least one among household names General Motors Corp, Ford Motor Co and Chrysler LLC at risk of bankruptcy if a last-minute bail-out plan fails.
However, the dividend yield on the U.S. equity market is now higher than the 10-year US Treasury bond yield for the first time since 1958, Barclays Wealth said in a note.
"Absolutely everyone is concentrated on risks and fear rules," said Nick Purves, fund manager at Schroders.
"You are now adequately compensated for taking that risk."
Federal Reserve officials slashed economic growth forecasts through 2009 on Wednesday, with the lower range of the Fed's central tendencies forecasting the U.S. economy could shrink by 0.2 percent.
Oil fell by more than $1.50 a barrel to 22-month lows at $51.95, as the slumping global economy hit demand.
Two-year U.S. Treasury yields hit record lows at 1.06 percent on expectations of a 50 basis point U.S. rate cut to 0.50 percent next month. Thirty-year yields hit their lowest since the early 1960s.
Euro zone government bond yields hit their lowest since July 2005 at 2.095 percent.
The dollar trimmed earlier losses but was down 0.27 percent to 95.65 against the safe-haven yen, and edged lower against the euro to $1.2547.
Emerging markets suffered from falling commodity prices and global demand. The MSCI emerging equities index dropped 4.71 percent to 466.52.
(Additional reporting by Natsuko Waki; editing by Chris Pizzey)