* Most equity markets slide on fear of worldwide recession
* Dollar retreats after rising to a two-year high vs euro
* Oil prices fall, but off 17-month low
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Oct 27 (Reuters) - The dollar and yen gained on
Monday as a slide in world stock markets and fears of a global
recession prompted investors to abandon risky assets, but U.S.
stocks bucked the downward trend on Verizon's good results.
Pessimism about the deteriorating global economic outlook
weighed on investors around the world, driving oil prices to a
17-month low below $62 a barrel at one point and keeping alive
a modest safe-haven bid in U.S. and euro-zone government debt.
The dollar climbed to its strongest level against the euro
in about 2-1/2 years, while the yen hovered near 13-year peaks
against the dollar. The yen also rose to its highest since May
2002 versus the single euro zone currency despite concern by G7
finance officials about its excessive volatility.
Both the dollar and yen have been the biggest beneficiaries
of global capital flows as investors unwind carry trades, which
use the low-yielding Japanese currency to buy everything from
higher-yielding currencies to stocks and commodities.
"This is a continuation of deleveraging and unwinding of
risk that has been happening the past week and this has
benefited the yen and the dollar," said Omer Esiner, senior
market analyst at Ruesch International in Washington.
The Dow and the S&P 500 seesawed heavily, with a tendency
to stay positive on optimism over Verizon Communications Inc's
<VZ.N> higher quarterly profit. The company's strong wireless
sales cheered investors.
Verizon shares jumped more than 11 percent.
Large banking stocks also got a boost after at least 10 of
them, including Capital One Financial Corp <COF.N>, State
Street Corp <STT.N> and SunTrust Banks Inc <STI.N>, joined the
U.S. Treasury Department's $250 billion plan to recapitalize
the troubled sector and spur lending.
The KBW banking index <.BKX> rose 3.68 percent.
Before 1 p.m., the Dow Jones industrial average <> was
up 126.48 points, or 1.51 percent, at 8,505.43. The Standard &
Poor's 500 Index <.SPX> was up 7.00 points, or 0.80 percent, at
883.77. The Nasdaq Composite Index <> was up 6.76 points,
or 0.44 percent, at 1,558.79.
European shares fell to a fresh 5-1/2 year closing low,
weighed down by fears of an economic downturn.
The FTSEurofirst 300 <> index of top European shares
closed down 1.7 percent at 816.04 points -- the lowest close
since May 2003.
The chemicals sector weighed heavily on the benchmark
index, with BASF <BASF.DE> down 10.9 percent, Clariant <CLN.VX>
8.4 percent lower and Wacker Chemie <WCHG.DE> falling 9.7
percent.
Fear of a global recession remained high in other markets,
too, helping push the yield on two-year bunds <EU2YT=RR> to its
lowest in three years.
The price of U.S. government debt, which moves in the
opposite direction of yield, were capped by a slight
improvement of sentiment in short-term funding markets, helped
by a Federal Reserve program to buy commercial paper.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
7/32 in price to yield 3.70 percent, and the 2-year U.S.
Treasury note <US2YT=RR> fell 5/32 in price to yield 1.57
percent.
The dollar was up against a basket of major currencies,
with the U.S. Dollar Index <.DXY> up 0.38 percent at 86.887.
The euro <EUR=> fell 0.70 percent at $1.2534, and against
the yen, the dollar <JPY=> was down 0.82 percent at 93.50.
U.S. light sweet crude oil <CLc1> fell 14 cents to $64.01 a
barrel.
Gloom about the world economy has had a greater impact than
a decision by the Organization of Petroleum Exporting Countries
on Friday to chop output by 1.5 million barrels per day.
"What OPEC did is constructive, but right now that is
beside the point," said Mike Wittner of Societe Generale.
Gold pared losses as the dollar retreated from highs
against the euro,
Spot gold prices <XAU=> rose $2.90 to $736.20 an ounce.
Japan's Nikkei index <> swung wildly overnight in
Asia, before ending down 6.4 percent at its lowest close since
1982. The MSCI index of Asian stocks outside Japan
<.MIAPJ0000PUS> fell for a fourth consecutive session, losing
3.2 percent.
(Additional reporting by Ellis Mnyandu, Gertrude
Chavez-Dreyfuss, John Parry in New York and Jane Merriman and
Jan Harvey in London and Sarah Marsh and Tyler Sitte in
Frankfurt; Editing by Neil Stempleman)
