* 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 U.S. 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 quell a drumbeat of
fears over a global recession, with investors charging into
gold and other safe havens.
U.S. and European stock and government debt markets were
extremely volatile. U.S. stock indexes see-sawed wildly and
U.S. benchmark Treasury yields marked their biggest single-day
rise in more than a decade.
An index known as Wall Street's fear gauge, the Chicago
Board Options Exchange Volatility Index <.VIX>, soared as much
as 10 percent to a record intraday high. An upward spike in the
VIX often occurs when equity markets suffer steep losses.
European shares sank to a near five-year closing low, and
overnight interbank lending rates in Europe fell on the
coordinated central bank rate cuts. But the cost of borrowing
longer term remained high, reflecting a reluctance of banks to
lend.
Oil prices fell as concerns about the impact of the global
financial crisis on demand and rising U.S. inventories
outweighed the move by central banks to cut rates.
Investors initially warmed to the one-half percentage point
cut in interest rates by the U.S. Federal Reserve, the European
Central Bank, the Bank of England and other central banks in
the first coordinated move since the Sept. 11 attacks of 2001.
But confidence was short-lived as rallies on Wall Street
failed. Short-dated euro zone government bonds rallied and gold
held onto strong gains as investors fled to safe-havens.
"Markets around the world are feeling the impact of
distressed portfolio liquidations, especially by hedge funds,
following weeks of poor performance and loss of leverage
capacity," Mohamed el-Erian, chief executive at top bond fund
Pacific Investment Management Co., told Reuters.
The yen surged to its highest level in three years against
the euro as fears widened that the coordinated rate cut effort
may not be sufficient to thaw credit markets.
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.
Wall Street performed almost the same, with the three major
indexes whipping between declines and gains of as much as 2
percent before all closing lower.
"It shows lack of confidence in the effect of the rate cut
this morning. People all day were trying to digest how
effective it would be and at the end of the day they decided it
would be safer to sell," said Giri Cherukuri, head trader at
OakBrook Investments LLC, in Lisle, Illinois.
The Dow Jones industrial average <> closed down 189.01
points, or 2 percent, at 9,258.10. The Standard & Poor's 500
Index <.SPX> fell 11.29 points, or 1.13 percent, at 984.94. The
Nasdaq Composite Index <> shed 14.55 points, or 0.83
percent, at 1,740.33.
The S&P financial index <.GSPF> fell 3 percent.
In the last hour of trading, U.S. Treasury Secretary Henry
Paulson warned that the turmoil "will not end quickly." He also
said it may be several weeks before the Treasury Department
begins buying unwanted and illiquid assets from financial firms
under the $700 billion bailout program that Congress approved
last week and that is now U.S. law.
With financial markets awash with signs that credit is
expensive and hard to come by, investors sold off banking
shares on both sides of the Atlantic.
Peter Jankovskis, director of research at OakBrook
Investments LLC in Lisle, Illinois, said a confidence crisis
was stopping banks from lending.
"It's not that the rate terms are not favorable, they're
just scared to death that they'll never get the money back."
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 and Deutsche
Bank <DBKGn.DE> falling 10.7 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
46/32 in price to yield 3.68 percent, and the 2-year U.S.
Treasury note <US2YT=RR> slipped 8/32 in price to yield 1.60
percent.
The dollar fell against a basket of major currencies, with
the U.S. Dollar Index <.DXY> off 0.26 percent at 80.908.
Against the yen, the dollar <JPY=> fell 1.46 percent at 99.85.
The euro <EUR=> rose 0.31 percent at $1.3659.
Spot gold <XAU=> rose $18.60 to $905.20 an ounce. Spot gold
has risen 25 percent since mid-September.
Oil prices hit a 10-month low, but pared losses after U.S.
stocks rose.
U.S. crude <CLc1> settled at $88.95 a barrel, down $1.11.
London Brent crude <LCOc1> fell 6 cents to $84.60 a barrel by
2:53 p.m. (1853 GMT).
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.
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.
(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)
