* Stocks slide worldwide on renewed global slowdown fears
* Oil prices fall below $68 a barrel to 16-month lows
* Dollar hits 2-year high, yen 4 1/2-year high versus euro
* Interbank lending picks up but pockets of stress remain
* Bonds up as stocks fall on economic fears, weak earnings
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Oct 22 (Reuters) - Global stock markets and
commodities prices slid again on Wednesday as a plunge in
emerging market assets, warnings of a British recession and
widespread deleveraging fed investors' fears.
Emerging stocks and bonds slid in a panic sell-off as hedge
funds rushed to unwind their positions, helping push the U.S.
dollar to a two-year high against the euro as investors dumped
risky assets in favor of safer currencies, such as the yen.
A credit crisis that has slammed the United States and
Europe over the past year finally began to wash up on
developing economies, adding to fears of a global recession.
Hungary raised interest rates to defend its currency, which
has slumped over worries over the health of the country's
banking system and the ability to finance its large external
debt. Argentina moved to nationalize its private pension system
and six countries in the European region either have sought
help from the International Monetary Fund or are in IMF talks.
Shares of Santander <SAN.MC>, the euro zone's biggest bank,
tumbled 9.9 percent on concerns over Latin American economies
after the Argentine move.
"The crisis has moved up in scale, from companies to
countries, and this is a logical progression of the same
theme," said Fortis strategist Philippe Gijsels in Brussels.
"Everybody is deleveraging, and as the water level goes
down, the rocks are more apparent," he said.
Argentina's Merval index <> slumped 17.3 percent,
extending an 11 percent slide on Tuesday, on the government's
bill to take over private pensions. The Merval on Wednesday
slid below the symbolic 1,000-point level for the first time in
four years.
The dollar rose to a five-year high against sterling after
Bank of England Governor Mervyn King said the British economy
was probably entering its first recession in 16 years, and the
road to stability was still not in sight.
Worries about the health of the global economy boosted
demand for safer assets like government debt. Yields on the
two-year Schatz <EU2YT=RR> fell to 2.829 percent, the lowest
yield since the beginning of 2006.
Oil fell to a 16-month low below $68 a barrel as a big rise
in U.S. fuel stocks last week provided further evidence of an
economic slowdown in the world's biggest energy consumer.
Gloom about the world's economic outlook could limit the
impact of any oil supply cuts that the Organization of
Petroleum Exporting Countries might agree to on Friday.
"The outlook for crude is lower prices and I imagine OPEC's
reductions won't be effective to prevent our seeing $60 oil,"
said Joseph Arsenio, managing director of Arsenio Capital
Management in Larkspur, California.
Wall Street also reeled on lower corporate earnings and
lowered outlooks amid expectations of slower growth.
After 1 p.m., the Dow Jones industrial average <> was
down 335.72 points, or 3.72 percent, at 8,697.94. The Standard
& Poor's 500 Index <.SPX> was down 37.86 points, or 3.96
percent, at 917.19. The Nasdaq Composite Index <> was down
41.44 points, or 2.44 percent, at 1,655.24.
Drug maker Merck & Co <MRK.N> tempered its long-range
earnings outlook, and ConocoPhilips <COP.N>, the third largest
U.S. oil company, said exploration and production output would
be below year-ago levels in 2008.
Merck slid 3.7 percent and Conoco fell 8.8 percent.
Wachovia Corp <WB.N>, which is being bought by Wells Fargo
& Co <WFC.N>, posted a third-quarter loss of $23.9 billion, a
record quarterly loss for a bank during the credit crisis. Its
shares fell 3.3 percent
European shares slumped, led by bank and energy stocks.
The FTSEurofirst 300 <> index of top European shares
ended down 5.4 percent at 873.90 points.
Banks again took most points off the index. Royal Bank of
Scotland <RBS.L> fell 14 percent, while ING <ING.AS> lost 11
percent after a Moody's downgrade of some ratings and AXA
<AXAF.PA> lost 8.2 percent.
Interbank borrowing costs mostly fell, with further steep
falls in dollar rates and spreads indicating that the flood of
liquidity pumped into the banking systems in recent weeks is
easing money market constraints.
But recession fears, and worries over emerging markets,
held center stage.
"You have two variables going in opposite directions. You
are seeing credit risks heading lower. But people are not
feeling good about the world, and the focus is shifting there,"
said Eric Lascelles, chief economics and rates strategist at TD
Securities in Toronto.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
25/32 in price to yield 3.64 percent, and the 2-year U.S.
Treasury note <US2YT=RR> rose 3/32 in price to yield 1.58
percent.
The euro <EUR=> fell 1.72 percent at $1.2832.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 1.44 percent at 85.631.
Against the yen, the dollar <JPY=> fell 1.82 percent at 98.52.
U.S. light sweet crude oil <CLc1> fell $5.24 to $66.94 a
barrel.
Spot gold prices <XAU=> fell $36.75 to $733.35.
In Asia, stocks slumped, with Japan's Nikkei down 6.8
percent as Sony Corp <6758.T> and other exporters fell after
the yen rose against the euro. Hong Kong shares slid 4.3
percent to a three-year low.
(Reporting by Leah Schnurr, Lucia Mutikani, Richard Leong and
Daniel Bases in New York and Jamie McGeever, Jane Merriman,
Sitaraman Shankar, Emelia Sithole-Matarise in London; Writing
by Herbert Lash; Editing by Leslie Adler)
