* Global stocks fall as deep recession fears grip markets
* U.S. crude futures drop to 20-month low under $57 barrel
* Government debt advances as stock losses spur safety bid
* Yen soars across the board, dollar to yen falls below 95
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Nov 12 (Reuters) - Crude oil prices slid to a
20-month low and stock markets around the world slumped on
Wednesday as fears that consumer spending will plunge and spur
a deep global slowdown drove investors to less risky assets.
A shift in how the U.S. government plans to spend what's
left in its $700 billion bailout fund also roiled markets after
U.S. Treasury Secretary Henry Paulson said he was backing away
from buying troubled mortgage assets.
Paulson's comments underscored the head winds the U.S.
economy faces, adding to the slide in stocks and feeding a bid
for such safe-haven assets as U.S. and euro-zone government
debt, and the yen.
"This is bringing uncertainty into the market, creating a
sense that the Treasury doesn't know what it's doing," said
Philippe Gijsels, strategist at Fortis in Brussels. "Now people
are talking of re-testing the year lows."
The threat of deflation, which would hurt corporate
profits, also slammed stocks and made risk-averse investors
steady buyers of U.S. Treasuries.
Sterling tumbled to a six-year low against the dollar and a
record trough against the euro after the Bank of England warned
the British economy will shrink sharply next year. Its governor
bolstered expectations of aggressive interest rate cuts.
The pound traded as low as $1.4898 <GBP=>, the weakest
since June 2002, and the U.S. dollar fell sharply against the
yen as investors shunned riskier assets.
News from Europe "just reinforced market expectations that
global recession is still in the cards," said Ronald Simpson,
managing director of global currency analysis for Action
Economics in Tampa, Florida. "We're probably going to continue
to see downward pressure on the euro and the pound in
particular."
Best Buy <BBY.N>, the largest U.S. electronics chain,
lowered its outlook on signs that consumer spending is falling
fast. Its shares fell 6.9 percent, and the S&P retail index
<.RLX> fell 3.7 percent.
After 1 p.m., the Dow Jones industrial average <> was
down 213.78 points, or 2.46 percent, at 8,480.18. The Standard
& Poor's 500 Index <.SPX> was down 24.16 points, or 2.69
percent, at 874.79. The Nasdaq Composite Index <> was down
40.38 points, or 2.55 percent, at 1,540.52.
European shares slid, led by banks and oil companies on
worries of more losses and a darkening economic picture, and as
Wall Street fretted over changes to the U.S. government's
financial sector bailout plan.
The FTSEurofirst 300 <> index of top European shares
ended 3.4 percent lower at 853.88 points.
BP <BP.L>, StatoilHydro <STL.OL> and Banco Santander
<SAN.MC> were the biggest drags on the benchmark index.
BP fell 4.6 percent, StatoilHydro shed 10.7 percent and
Santander fell 7.6 percent.
Crude oil prices fell more than 4 percent on expectations
of weaker energy demand and as global stock markets headed
south.
The bearish tone was set by the International Energy
Agency, which said a slowing world economy may force it to cut
further its forecast for oil demand growth when it releases its
latest monthly report on Thursday.
The fall in oil prices prompted officials from the
Organization of Petroleum Exporting Countries to say they might
cut oil production further.
U.S. light sweet crude oil <CLc1> fell $2.27 to $57.06 a
barrel.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.14 percent at 87.198. Against
the yen, the dollar <JPY=> was down 1.92 percent at 95.81.
The euro <EUR=> rose 0.26 percent at $1.255.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
14/32 to yield 3.71 percent, and the 2-year U.S. Treasury note
<US2YT=RR> rose 3/32 to yield 1.22 percent.
Spot gold prices <XAU=> fell $7.30 to $723.70 an ounce.
Japan's Nikkei average <> shed 1.3 percent on the
lightest volume in about six weeks, while the MSCI benchmark
index of Asian stocks outside of Japan <.MIAPJ0000PUS> lost 0.8
percent.
(Reporting by Wanfeng Zhou, Ellen Freilich in New York and
Christopher Johnson, George Matlock and Sitaraman Shankar in
London; writing by Herbert Lash; Editing by Leslie Adler)
