* U.S. crude slides to fresh four-year low near $36 barrel
* U.S. stocks fall after S&P warns about GE credit rating
* Dollar posts biggest one-day gain vs yen in over a month
* Long bond yields near historic lows in hunt for safety (Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Dec 18 (Reuters) - Fears of a worsening U.S. economy drove yields on long-dated government bonds to fresh 50-year lows and led Standard & Poor’s on Thursday to warn that it could cut General Electric’s top credit rating, pushing Wall Street sharply lower.
Signs of economic duress were visible throughout financial markets, with U.S. crude prices dropping more than 9 percent to $36 a barrel and investors accelerating a safe-haven scramble into the relative safety of government securities.
Oil’s slide overshadowed an agreement on a record output cut on Wednesday by members of the Organization of Petroleum Exporting Countries, while the International Energy Agency said the market’s fixation on falling demand was unlikely to end soon.
“The price is not going higher because the market has expected the (OPEC cut) number,” the IEA’s Executive Director Nobuo Tanaka told Reuters. “The global economy is getting worse, so the market is responding to this.”
The U.S. dollar, in response to speculation the Japanese government may intervene to halt a recent sharp advance by the yen, posted its biggest one-day rise against the yen in more than a month.
U.S. stocks turned sharply lower after Standard & Poor’s said there is at least a 1-in-3 chance it could strip GE’s AAA credit rating in the next two years if the American icon’s earnings and cash flow decline enough to warrant a downgrade.
General Electric (GE.N) shares tumbled 8.2 percent.
The Dow Jones industrial average .DJI closed down 219.35 points, or 2.49 percent, at 8,604.99. The Standard & Poor's 500 Index .SPX fell 19.08 points, or 2.11 percent, at 885.34. The Nasdaq Composite Index .IXIC slipped 26.94 points, or 1.71 percent, at 1,552.37.
The yen came off its highest level in more than 13 years after Japanese authorities stepped up their rhetoric against a stronger currency, which is hurting the nation’s exporters.
The dollar rose against a basket of major currencies, with the U.S. Dollar Index .DXY up 1.75 percent at 79.95. Against the yen, the dollar JPY= rose 2.49 percent to 89.48.
The euro EUR= fell 1.32 percent at $1.4211.
U.S. bonds rallied for a third straight session. Longer maturities yields have shed half a percentage point since the Federal Reserve on Tuesday cut its benchmark interest rate target to near zero percent in an attempt to end a yearlong recession.
The yield on the benchmark 10-year U.S. Treasury note US10YT=RR fell as low as 2.04 percent, the lowest since the early 1950s, while the 30-year Treasury US30YT=RR fell to a record low of 2.52 percent.
In Europe, a rally in defensive sectors, such as utilities and telecoms, helped limit losses in European equities.
Carrefour (CARR.PA), the world’s second-biggest retailer, sank 7.0 percent after warning it expects only slight growth in 2008 compared with previous guidance of about 7 percent.
The FTSEurofirst 300 .FTEU3 index of top European shares closed 0.17 percent lower at 827.12 points.
“There is more financial debris to come out of the financial sector when fourth-quarter results come through,” said Kevin Gardiner, head of Global Equity Strategy at HSBC Investment Bank.
“And the near-term economic data is going to remain pretty poor for quite a while, so we can’t rule out new lows for stocks, but we’re optimistic that we won’t probably see them.”
Oil prices tumbled on supply concerns. Top forecasters are predicting the first decline in world energy use since 1983 as the global financial crisis gnaws at consumer and industrial demand.
The January U.S. crude oil contract CLc1, which expires on Friday, settled down $3.84 at $36.22 a barrel, after earlier hitting $35.98, the lowest price since June 2004. London Brent LCOc1 traded down $1.61 at $43.92 at 2:51 p.m.
Gold ended lower as the dollar’s rebound and oil drop led investors to take a breather following bullion’s recent rally.
U.S. gold futures for February delivery GCG9 settled down $7.90 to $860.60 an ounce in New York. (Reporting by Chuck Mikolajczak, Wanfeng Zhou, Richard Leong and Matthew Robinson, Robert Gibbons and Frank Tang in New York; Kirsten Donovan in London and Blaise Robinson in Paris; writing by Herbert Lash, Editing by Chizu Nomiyama)