* Stocks slide amid doubts about global response to crisis
* Fed commercial paper program cuts govt debt safety bid
* Dollar slips against currency basket, yen also falls
* Gold soars more than 3 pct as investors seek safety
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Oct 7 (Reuters) - U.S. stocks cratered on Tuesday
and gold prices soared as moves by European and U.S. central
bankers to implement emergency measures to shore up the
financial system failed to stave off panic that a deep
recession is looming.
A more than 500-point decline in the Dow Jones industrial
average capped the biggest five-day point loss ever for the
blue chip index.
The sharpening stock market losses renewed the bid for
safe-haven securities, with the price of U.S. government debt
paring or erasing losses.
Federal Reserve Chairman Ben Bernanke, in a dramatic shift
to support the battered economy, signaled a readiness to cut
interest rates and the Fed stepped forward as a commercial
lender of last resort.
But investors sought a concerted global effort to stem the
growing financial crisis. Earlier, European shares closed
modestly lower on disappointment about the lack of a
coordinated push by the world's leading central banks to cut
interest rates.
Banking stocks were slammed on both sides of the Atlantic.
The price of spot gold soared 3.4 percent, while in euro
terms gold rose to to an all-time high, Reuters data showed,
spurred by buying of the traditional safe-haven.
The International Monetary Fund also urged a more coherent
and coordinated set of global policies to calm market jitters.
The IMF increased its expectations of worldwide credit losses
to $1.4 trillion, almost a 50 percent increase from April.
"What's happening in financial markets is quite
unprecedented and we are in favor of concerted and coordinated
action," Jaime Caruana, director of the IMF's monetary and
capital markets division, told reporters in Washington.
The Dow Jones industrial average <> closed down 146.71
points, or 1.47 percent, at 9,808.79. The Standard & Poor's 500
Index <.SPX> lost 18.10 points, or 1.71 percent, at 1,038.79.
The Nasdaq Composite Index <> fell 36.83 points, or 1.98
percent, at 1,826.13.
The five-day slide through Tuesday has sliced 1,400 points
off the Dow, the biggest cumulative point loss on record for
the iconic barometer of U.S. equity markets, Reuters data
shows.
"The market can't seem to find a footing, no matter what
the government or the Fed tells them," said Linda Duessel,
market strategist at Federated Investors in Pittsburgh.
"We've all been shellshocked by the momentum on the
downside in this market, and now people are talking about a
long and deep recession -- just a month ago many thought a
recession could be averted."
The S&P financial index <.GSPF> slid 11.5 percent as shares
of Bank of America <BAC.N> skidded 26.2 percent a day after the
bank announced a plan to raise as much as $10 billion to shore
up its capital. Fears that other banks may also need to raise
capital weighed on the sector.
Iceland took over its second-largest bank and propped up a
battered currency, while Russia negotiated an emergency bailout
for Iceland and unveiled an aid package for its own banks.
In other efforts Australia slashed interest rates by 1
percentage point to 6 percent, and Britain considered a massive
injection of public funds.
But the individual measures failed to calm investor nerves.
Speculation that Japanese bank Mitsubishi UFJ Financial Group
<8306.T> would scuttle a deal to buy up to 24.9 percent of
Morgan Stanley's <MS.N> voting shares sent Wall Street reeling
in mid-afternoon trade.
A Morgan Stanley spokesman later said the deal was on track
to close "imminently," helping the bank's shares and Wall
Street pare losses briefly, before resuming a relentless
downward march.
European shares closed down only modestly, but European
banks fell heavily on disappointment about the lack of a
coordinated push by leading central banks to cut rates.
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.
"Banks need measures to boost their capital," 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."
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.
The Fed's announcement of a new program to buy short-term
unsecured debt led investors to 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> slipped 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 one-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.
The dollar fell against a basket of major currencies, with
the U.S. Dollar Index <.DXY> down 0.71 percent at 81.095.
Against the yen the dollar <JPY=> fell 0.41 percent at 101.39.
The euro <EUR=> gained 0.87 percent at $1.3605.
In euro terms, gold rose to a new record of 654.22 euros an
ounce, up from 635.29 euros late on Monday.
Spot gold prices <XAU=> rose $28.80 to $886.25 an ounce.
Oil prices rose more than $2 as signs that OPEC was
considering a supply cut outweighed concerns about the global
financial crisis.
U.S. crude <CLc1> settled at $90.06 a barrel, up $2.25,
after hitting an eight-month low on Monday as part of a
four-day decline. London Brent <LCOc1> settled at $84.66 a
barrel, up 98 cents.
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)
