* World stocks slump then recover on US auto bailout news
* Bonds jump, US dollar falls then recovers
* US auto bailout fails in Senate, revived by White House
NEW YORK, Dec 12 (Reuters) - World stocks fell, bonds rose
and the U.S. dollar tumbled on Friday after the U.S. Congress
failed late Thursday to pass an automaker bailout package, but
the White House's assurance that it would try to prevent the
car makers' bankruptcy helped markets to recover some ground.
The collapse of a proposed bailout for U.S. automakers
raised fears of a deeper economic slowdown and further
financial shocks that may jeopardize worldwide efforts to ease
a global recession.[]
GM, Ford and Chrysler employ nearly 250,000 people directly
and 100,000 more jobs at parts suppliers could hang on their
survival.
Shares of General Motors <GM.N> were down 11 percent to
$3.66 while Ford Motor <F.N> was off 8 percent to $2.66 after
GM fell more than 30 percent and Ford more than 20 percent on
opening.
"There will be some type of action to prevent a collapse,"
said Tim Ghriskey, chief investment officer of Solaris Asset
Management in Bedford Hills, New York.
"That doesn't mean they don't need to be significantly
restructured, which would entail people losing jobs, factories
closing, new management in some cases and certainly new
oversight."
The Dow Jones industrial average <> fell 134.61 points,
or 1.57 percent, to 8,430.48. The Standard & Poor's 500 Index
<.SPX> dropped 13.10 points, or 1.50 percent, to 860.49. The
Nasdaq Composite Index <> shed 9.02 points, or 0.60
percent, to 1,498.86.
Friday's decline meant further headwinds for the U.S.
stockmarket that has been trying to recover from an 11-year low
hit on Nov. 21. So far this year the benchmark S&P 500 index is
down about 40 percent.
Earlier European shares fell led by banks which slipped
after U.S. bank JP Morgan <JPM.N> said it had had a "terrible"
November and December, and auto stocks which fell after rescue
talks for U.S. carmakers collapsed.
The FTSEurofirst 300 <> index of top European shares
was down 4.8 percent at 812.92 points early in the session.
The index has fallen more than 46 percent this year, hurt
by a credit crisis which has helped push several major
economies into recession.
News that Bank of America Corp <BAC.N> plans to eliminate
30,000 to 35,000 jobs over three years also added to investor
nerves, while British bank HBOS <HBOS.L> plunged 18 percent
after bad debts and other charges jumped to 8 billion pounds.
[] []
The MSCI world stock index was off 2.14 percent by
midsession in New York on Friday at 216.75.
BONDS SOAR EARLY
U.S. Treasuries prices soared overnight before giving back
ground on Friday after new U.S. economic data looked less grim
than forecast and the U.S. Treasury said it stood ready to
prevent the failure of the car makers, despite the Senate's
failure to pass a rescue bill late Thursday.
"Today has been one of those V-shaped days where there was
a big rally overnight which then turned tail once investors saw
that the government was not going to let General Motors fail
and that retail sales were not as bad as expected," said Cary
Leahey, senior economist at Decision Economics in New York.
Leahey said "a significant flight to Treasuries occurred
overnight due to nervousness about GM and weak equities.
"Then people took profits after the U.S. retail sales
report which showed some steadiness in retail sales," he said.
of 1.9 percent for total sales forecast by Wall Street. Sales
of furniture, electronics and clothing rose.
"People are taking some of the money they were spending on
energy and spending it on other things which was a more upbeat
reading than expected," Leahey said.
In morning trade, benchmark 10-year Treasury notes
<US10YT=RR> were down 7/32, with their yields rising to 2.63
percent from 2.61 percent on Thursday. Two-year Treasury notes
<US2YT=RR> were also flat, yielding 0.80 percent.
Euro zone government bonds turned negative on Friday after
an early rally also. March Bund futures <FGBLc1> were down 25
ticks on the day at 122.17, well off the session high of
123.43. Two-year Schatz yields <EU2YT=RR> were flat on the day
at 2.14 percent percent, having earlier fallen to a low of
2.042 percent.
DOLLAR SLUMPS FURTHER
The U.S. dollar plunged to its lowest in 13-1/2 years
against the yen on Friday, as the U.S. Senate's failure to
agree on a bail-out for troubled U.S. automakers sharply
diminished risk appetite and stoked demand for the low-yielding
Japanese currency.
The dollar tumbled to 88.1 yen <JPY=>, according to
electronic trading platform EBS, before some recovery on
speculation Japanese authorities may consider intervening to
stem further yen strength.
"The environment has become challenging for the dollar,
with the collapse of the auto deal the big driver overnight,"
said Shaun Osborne, chief currency strategist at TD Securities
in Toronto.
"So risk appetite has come off and boosted the yen. And
perhaps people are looking at the dollar and it's not looking
great because of the U.S. economy's low growth and low interest
rates. We are perhaps looking at the cusp of a big sell-off in
the dollar."
The euro <EUR=> was little changed at $1.3356, while
sterling <GBP=> traded 0.3 percent lower at $1.4986.
U.S. crude oil futures fell sharply Friday as global
equities slumped amid the failure of the U.S. automaker rescue
package in the U.S. Senate, and with Goldman Sachs predicting
oil prices could fall to $30 a barrel. Midsession January crude
oil futures <CLc1> were down $3.69 or 7.69 percent at $44.29 a
barrel.
Gold prices jumped to a seven week high early around
$825.49 an ounce, before giving back some gains.
(Reporting by Chuck Mikolajczak, Ellen Freilich, Gertrude
Chavez-Dreyfuss and Robert Gibbons in New York, with Brian
Gorman, George Matlock, Ian Chua, and Jan Harvey in London;
editing by Clive McKeef)
