* 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 biggest drags on the Dow for the second consecutive
session were Exxon Mobil <XOM.N> and Chevron Corp <CVX.N>, with
both falling about 5 percent.
The Dow Jones industrial average <> 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 <> 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 <> 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)
