* Stocks slip amid doubts about European crisis response
* Fed commercial paper program cuts govt debt safety bid
* Dollar slips against currency basket, yen also falls
* Oil rebounds, but OPEC members worried by oil price fall
(Adds close of European markets)
By Herbert Lash
NEW YORK, Oct 7 (Reuters) - Investors took a dim view of
paltry European efforts to shore up unsettled markets, sending
U.S. and European equity stocks lower on Tuesday, while another
emergency Federal Reserve move to shore up credit markets
curbed the safe-haven appeal of government debt.
The U.S. dollar and the yen fell after the Fed announced
the creation of a new funding facility to thaw the frozen
commercial paper market that is critical for funding day-to-day
operations for many companies. That move raised risk appetites
in currency markets, while it cut prices for U.S. and euro zone
government debt.
But gold prices climbed, with an all-time high set in euro
terms, Reuters data showed, as lingering fears over the outlook
for the financial sector spurred buying. A weaker dollar
against the euro also helped lift gold prices.
U.S. stocks fell sharply after the Federal Reserve's move
failed to stem fears about the widening fallout from the credit
crisis.
European shares closed down only modestly slightly, but
financial shares on both sides of the Atlantic skidded. with
European shares falling heavily on disappointment about the
lack of a coordinated push by the world's leading central banks
to cut interest rates.
"Banks need measures to boost their capital, and without
real measures from the authorities, it's not a few take-overs
or isolated rescues that will help stop the crisis," said
Sebastien Barthelemi, an analyst at Louis Capital Markets in
Paris.
"We need a strong move by governments. Each country has
been reacting on its side, but we need something stronger to
calm down markets," he said.
Shares in Royal Bank of Scotland <RBS.L> and HBOS <HBOS.L>
plunged nearly 40 percent on talk that the British government
was mulling a possible bank recapitalization plan.
In New York, the S&P financial index <.GSPF> slid nearly 4
percent as shares of Bank of America <BAC.N> skidded more than
14 percent a day after the bank announced a plan to raise as
much as $10 billion to shore up its capital.
Bank of America also slashed its dividend and posted a
slide in quarterly profit in a surprise announcement after U.S.
markets closed on Monday.
After the global equity rout on Monday, which knocked the
Dow below 10,000 for the first time in four years, investors
hoped central banks might mount a coordinated response to calm
jittery markets.
"I like this commercial paper market effort that the Fed is
doing. It might help us domestically," said Marc Pado, U.S.
market strategist at Cantor Fitzgerald & Co in San Francisco.
"But if we don't see Europe, whether it's the Bank of
England or the European Central Bank, taking the kind of steps
that we want, then how far can this really go? The markets want
to see a coordinated effort."
Before 1 p.m., the Dow Jones industrial average <> was
down 146.71 points, or 1.47 percent, at 9,808.79. The Standard
& Poor's 500 Index <.SPX> was down 18.10 points, or 1.71
percent, at 1,038.79. The Nasdaq Composite Index <> was
down 36.83 points, or 1.98 percent, at 1,826.13.
The FTSEurofirst 300 <> index of top European shares
ended 0.14 percent lower at 1,003.51 points, a day after the
index posted its worst one-day percentage fall on record.
Other European banks hard hit by bearish sentiment included
Commerzbank <CBKG.DE>, down 14 percent, Barclays <BARC.L>,
which shed 17 percent, and Lloyds TSB <LLOY.L> off 13 percent.
The Fed's commercial paper announcement led investors to
quickly unwind the heavy safe-haven buying of government debt
that was seen on Monday.
"This is definitely a needed function. With the corporate
bonds there has been a lot of speculation that they have been
strapped for cash because of the lack of availability of
commercial paper," said William Larkin, fixed income portfolio
manager at Cabot Money Management in Salem, Massachusetts.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
8/32 to yield 3.49 percent, and the 2-year U.S. Treasury
note<US2YT=RR> fell 2/32 to yield 1.47 percent.
One-month Treasury bill <US1MT=RR> rates jumped to yield
almost 0.50 percent after the Fed announcement on buying up
commercial paper. Short-term bills were heavily bought in
recent days, with 1-month rates down almost to zero in a rush
for the lowest-risk investment.
Investors had dumped risky assets in currency markets in
recent days, which sent the dollar to a 13-month peak against
the euro and sparking broad gains in the yen.
But the dollar fell against a basket of major currencies,
with the U.S. Dollar Index <.DXY> off 0.62 percent at 81.172.
Against the yen, the dollar <JPY=> rose 0.28 percent at
102.10.
In euro terms, gold rose to a new record of 654.22 euros an
ounce, up from 635.29 euros late on Monday.
In New York, spot gold prices <XAU=> rose $13.75 to $871.20
an ounce.
"Gold's strength has been masked by the dollar," VM Group
analyst Matthew Turner said. "The price today in euros is at an
all-time high. Coin sales have been soaring and ETF demand is
strong. There is a lot of demand out there for gold."
Gold often moves counter to the dollar's direction,
especially when it is bought as an alternative investment to
the U.S. currency.
Oil prices trimmed earlier gains. U.S. light sweet crude
oil <CLc1> rose $1.23 to $89.04 a barrel.
But even with oil prices up on the day, the recent slide in
the price of crude has worried some members of the Organization
of Petroleum Exporting Countries.
"If this volatility continues, OPEC will have to do
something," Shokri Ghanem, chairman of Libya's National Oil
Corp, told Reuters by telephone. []
Overnight in Asia, stocks outside Japan rose for the first
time in four days. Japan's Nikkei share average <>
finished down 2.2 percent at a five-year low, but MSCI's index
of Asia-Pacific stocks outside of Japan <.MIAPJ0000PUS> rose
1.5 percent, rebounding from a low last seen in December 2005.
(Reporting by Kristina Cooke, Chris Reese, Wanfeng Zhou and
Steven C. Johnson in New York and Atul Prakash, Jan Harvey, Ian
Chua, Alex Lawler in London; Writing by Herbert Lash; Editing
by Leslie Adler)
