* U.S. stocks fall as fears rise of a worldwide recession
* Oil rises on expectations OPEC to cut supplies
* European stocks rise, as oil prices drive energy shares
* U.S. dollar rebounds against yen
(Recasts with close of U.S. markets)
By Herbert Lash
NEW YORK, Oct 17 (Reuters) - U.S. stocks fell on Friday
after weak U.S. housing and consumer confidence reports added
to growing worries about a widening slowdown, while oil prices
rose on growing expectations OPEC will cut crude supplies.
Trading was volatile on Wall Street and other financial
markets as a wave of forced selling pushed security prices
wildly up and down in what has become a daily occurrence.
The U.S. dollar rebounded against the yen in signs of
greater risk appetite but gold dropped after the dollar rally
triggered heavy liquidations by commodity funds.
The Dow capped its best weekly gain in five years and the
broader S&P 500 had its best week since February after a
disastrous three weeks that had knocked U.S. stocks deeply into
bear territory.
Oil jumped 2.9 percent, spurred by a broader rise across
many financial markets and expectations that the Organization
of Petroleum Exporting Countries could cut output at an
emergency meeting next week.
U.S. crude <CLc1> settled up $2 to $71.85 a barrel, while
London Brent crude <LCOc1> gained $1.76 to settle at $69.60 a
barrel.
The rise in oil prices pushed energy shares in Europe
sharply higher, driving up markets across the continent.
U.S. stocks had risen solidly earlier on reassuring results
by technology leaders Google and IBM, as well as
bargain-hunting.
But a growing fear of recession loomed over investors on
reports that showed U.S. consumer sentiment suffered its
steepest monthly drop on record in October and housing
construction starts fell to a 17-1/2-year low last month.
Given the number of signs that the global economy was
headed into a potentially deep recession, investors remained
cautious.
"Sentiment remains fragile," said Sudakshina Unnikrishnan,
analyst at Barclays Capital. "The macroeconomic uncertainty
and recession fears coupled with volatility in the financial
markets means any sort of recovery we see in prices could be
viewed as temporary," she said.
There were more advancing shares than declining shares on
the New York Stock Exchange, but among the 25 most active
decliners outnumbered advancing stocks by 2 to 1.
Wall Street turned lower in late trade after a
roller-coaster session. Analysts said options expirations could
have increased stock market volatility on Friday.
"There is not a whole lot of depth and liquidity in the
market. That is what is causing these wild intraday swings in
the stock benchmarks," said Thomas Haugh, chief investment
officer of brokerage and money manager PTI Securities and
Futures in Chicago, who said he doubts the options expiration
is a factor in these wild swings.
The Dow Jones industrial average <> closed down 127.04
points, or 1.41 percent, at 8,852.22. The Standard & Poor's 500
Index <.SPX> slipped 5.88 points, or 0.62 percent, at 940.55.
The Nasdaq Composite Index <> shed 6.42 points, or 0.37
percent, at 1,711.29.
A number of companies warned of quickly slowing economic
growth.
Schlumberger Ltd <SLB.N>, the world's largest oilfield
services company, warned that the credit crisis and softening
global economy could trim spending expectations in the oil and
gas industry next year. Its shares fell 5.6 percent.
Honeywell International Inc <HON.N> cut its fourth-quarter
profit forecast below Wall Street's expectations and said it is
bracing for "recessionary conditions" in the United States and
Europe next year, sending its shares down 6 percent.
In Europe shares gained 4.2 percent, ending a volatile week
on a strong note thanks to energy stocks that tracked a
recovery in crude, while drugmakers rose ahead of key company
reports next week.
"What helps is that we've ended the week in the same way it
started, on an upbeat note," said Mike Lenhoff, chief
strategist at Brewin Dolphin.
The pan-European FTSEurofirst 300 finished the week 6.3
percent higher.
The FTSEurofirst 300 <> index of top European shares
closed up 4.2 percent at 894.77 points. The index has lost 39.9
percent this year on recession worries and the effects of
banking failures.
"This is the most volatile week we've seen," said Thierry
Lacraz, strategist at Swiss bank Pictet in Geneva. "The sole
intelligent thing is to remain on the sidelines and not make
any huge bets."
U.S. government debt wavered as rising stocks tempered the
flight to safety.
"Along with everyone else, the eyes of Treasuries investors
are glued to what's going on in the stock market," said Chris
Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi.
"When stocks go up, the bid for Treasuries goes down. When
stocks go down, the bid for Treasuries comes back."
Investors moved money into U.S. government debt in the late
stock market sell-off, but signs of more credit supply pared
the safe-haven appeal of ultra-short debt.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
10/32 in price to yield 3.93 percent, while the 2-year U.S.
Treasury note <US2YT=RR> was unchanged in price to yield 1.62
percent.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.21 percent at 82.458.
The euro <EUR=> fell 0.45 percent at $1.3424, and against
the yen, the dollar <JPY=> fell 0.24 percent at 101.36.
Gold dropped 2 percent, concluding a volatile week of
selling, as a lack of confidence in the financial system and a
dollar rally triggered heavy liquidation by commodity funds.
Gold's status as a hedge against inflation was also
weakened as investors fretted that a recession could not be
avoided amid a deepening financial crisis.
Gold bullion <XAU=> fetched $785.80 an ounce at 2:23 p.m.
EDT (1823 GMT), down 2.3 percent from Thursday's close of
$804.50. Earlier it touched $771.30, the lowest since Sept.
15.
(Reporting by Ellis Mnyandu, Steven C. Johnson, Ellen Freilich
in New York and Joe Brock, Ian Chua, Tyler Sitte and Jan Harvey
in London; Writing by Herbert Lash; Editing by Leslie Adler)
