* Global stocks slide as recession fears offset rate cuts
* U.S. Treasury debt prices slide after $16 bln auctions
* Yen hits 3-year high vs euro in risk aversion bidding
* Oil falls more than $3 after U.S. crude inventories rise
* Gold posts strong gains as investors seek safety
(Recasts lead, adds close of European markets)
By Herbert Lash
NEW YORK, Oct 8 (Reuters) - Panic selling again swept
global equity markets on Wednesday after a coordinated
worldwide cut in interest rates failed to bolster the battered
confidence of investors who jumped into gold and other
safe-havens.
U.S. stocks were highly volatile, however, briefly turning
higher in the early afternoon after falling more than 2
percent, after European shares sank to a near five-year closing
low.
Investors at first had warmed to a one-half percentage
point cut in interest rates by the U.S. Federal Reserve, the
European Central Bank, the Bank of England and other key
central banks around the world, the first coordinated move
since the Sept. 11, 2001, attacks.
But confidence was short-lived, and the price of government
debt, stocks and crude oil swung wildly. Short-dated euro zone
government bonds rallied and gold held onto strong gains as
investors fled to safe-havens.
The benchmark FTSEurofirst 300 index of top European
shares, after falling nearly 8 percent in early trade, recouped
most of its losses after the rate cuts only to slide anew.
Keeping investors on edge were credit markets, which
remained tight despite the coordinated effort to pry them
open.
"Global central banks took on the rate cuts because they
wanted to unfreeze the credit market, but credit spreads are
still widening," said Brian Dolan, chief currency strategist,
at Forex.com in Bedminster, New Jersey.
The yen surged broadly to its highest level in three years
against the euro as fears widened that coordinated central bank
effort may not be sufficient to thaw frozen credit markets.
"It's essentially too little, too late," said Kathy Lien,
director of currency research at GFT Forex in New York.
"Liquidity is still at a premium right now and that's weighing
on the market's risk appetite."
The euro also tumbled 1.1 percent to 136.16 yen <EURJPY=>.,
after falling as low as 134.20 yen, the lowest level since
August 2005.
With financial markets awash with signs that credit is
expensive and hard to come by, investors also sold off banking
shares on both sides of the Atlantic.
"What's hurting things right now is a crisis in confidence
-- people are not willing to lend," said Peter Jankovskis,
director of research at OakBrook Investments LLC in Lisle,
Illinois. "It's not that the rate terms are not favorable,
they're just scared to death that they'll never get the money
back."
Alcoa Inc <AA.N> reported a lower-than-expected profit late
on Tuesday and said it was halting major capital projects in
the face of uncertain markets. Its shares slumped 13 percent to
$14.54
At 1:30 p.m., the Dow Jones industrial average <>
was down 64.20 points, or 0.68 percent, at 9,382.91. The
Standard & Poor's 500 Index <.SPX> was down 5.62 points, or
0.56 percent, at 990.61. The Nasdaq Composite Index <> was
down 2.34 points, or 0.13 percent, at 1,752.54.
The S&P financial index <.GSPF> fell 0.60 percent.
In Europe, the FTSEurofirst 300 <> closed down 6.3
percent at 940.78 points, its lowest close since December 2003.
The index has lost 13.6 percent this week.
The banking sector took the most points off the index, with
Anglo Irish Bank <ANGL.I> sliding 15.6 percent, Deutsche Bank
<DBKGn.DE> falling 10.7 percent and Banco Santander <SAN.MC>
down 5.8 percent.
Some British financial shares rose, however, after Britain
announced a multi-billion pound rescue package for banks that
included plans to inject up to 50 billion pounds of government
money into the country's biggest operators.
Despite the flight to safety, U.S. Treasury prices fell
after two auctions totaling $16 billion.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
56/32 in price to yield 3.72 percent, and the 2-year U.S.
Treasury note <US2YT=RR> fell 11/32 in price to yield 1.64
percent.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> off 0.55 percent at 80.674.
The euro <EUR=> rose 0.70 percent at $1.3712, and against
the yen, the dollar <JPY=> fell 1.36 percent at 99.95.
Oil prices fell on worries that demand will fall due to a
weakening global economy and on rising U.S. inventories.
U.S. light sweet crude oil <CLc1> fell $1.98 to $88.08 a
barrel.
Spot gold prices <XAU=> rose $19.50 to $906.10 an ounce.
How much the rate cuts will allow troubled banks to improve
their balance sheets and keep businesses humming was unclear.
In Asia, the Nikkei plunged 9.4 percent in its biggest
one-day drop since the 1987 stock market crash, on fears of a
global recession.
The MSCI Asia-Pacific index of stocks outside Japan
<.MIAPJ0000PUS> tumbled 7 percent, dragged down by the global
financial panic.
The International Monetary Fund said the financial upheaval
would exact a heavy economic toll as markets wrestle with a
crisis of confidence and global credit is choked off. It said
the world economy was set for a major downturn with the United
States and Europe either in or on the brink of recession.
The IMF slashed its 2009 forecast for world growth to 3.0
percent from a July projection of 3.9 percent, and warned that
a recovery from the worst financial crisis since the 1930s
would be unusually slow.
Losses on global stock markets have been huge this year,
especially since mid-September when the collapse of U.S.
investment bank Lehman Brothers sparked heavy selling.
Since global markets peaked about 12 months ago, more than
$12.4 trillion in stock market wealth across the world has been
wiped out, according to MSCI's main world equity index.
More than one-third of that loss -- about $4.6 trillion --
has occurred since Lehman's bankruptcy.
(Reporting by Ellis Mnyandu, Chris Reese, Wanfeng Zhou and
Gertrude Chavez-Dreyfuss in New York; Lesley Wroughton in
Washington and Joe Brock and Humeyra Pamuk in London; Writing
by Herbert Lash; Editing by Leslie Adler)
