* Fear of economic gloom sparks widespread safe-haven bids
* Longer bonds hold earlier gains on record drop in CPI
* Oil falls as economic gloom continues to weigh on market
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Nov 19 (Reuters) - U.S. and European shares ended
at five-and-a-half-year closing lows on Wednesday as a record
drop in U.S. consumer prices and more dismal housing data
stoked recession fears, driving a flight to safety.
Doubts about the prospect of a U.S. auto industry rescue
added to America's weak economic outlook, further weighing on
stocks and helping push the dollar down against the yen.
All three major U.S. indexes -- the Dow, S&P 500 and Nasdaq
-- posted their lowest closes since early 2003, while MSCI's
all-country world index <.MIWDOOOOOPUS> also slipped to lows
last seen more than five years ago.
The S&P and Nasdaq fell more than 6 percent, the Dow shed
more than 5 percent and the MSCI index lost about 4.7 percent.
All 30 components of the Dow closed lower, while in the S&P
only seven stocks rose out of the index's 500 companies.
Shares of the three largest U.S. banks -- JPMorgan Chase,
Citigroup, and Bank of America -- posted double digit
percentage drops to multiyear lows on expectations that a
worsening economy and credit conditions will weigh heavily on
them.
Oil fell below $54 to 22-month lows after an unexpectedly
large build in U.S. crude inventories underlined falling demand
in a rapidly deteriorating economy.
Debt prices on both sides of the Atlantic rose on signs of
fading inflation after the U.S. government reported a 1 percent
drop in consumer prices in October -- the biggest drop since
the Labor Department began monthly records in 1947.
A slump in new-home building to fresh lows also helped
drive up risk aversion and the price of government debt.
"There is still a heightened preference for quality, safety
and security. Cash is coming out of equities and other riskier
assets and into the Treasury securities market, particularly
the back end," said William Sullivan, chief economist with JVB
Financial Group in Boca Raton, Florida.
Markets are pricing in further rate cuts, with the U.S.
Federal Reserve seen cutting another 50 basis points in
December <FEDWATCH> and figures derived from Eonia rates fully
pricing in 75 basis points of European Central Bank cuts next
month.
With prospects for a U.S. auto industry rescue diminishing,
shares of General Motors <GM.N> fell to a 66-year low before
paring losses to close down 9.7 percent, while Ford <F.N>
plunged 25 percent.
"There's just no catalyst to buy stocks and for the kind of
confidence we need for the market to have any sustainable
progress," said Alan Lancz, president of Alan B. Lancz &
Associates Inc, an investment advisory firm in Toledo, Ohio.
The rout was broad and deep. Declining shares on the New
York Stock Exchange outnumbered advancers by 16 to 1, while 941
issues -- more than 1 out of 4 issues that traded -- set
52-week lows.
JPMorgan Chase <JPM.N> fell 11.4 percent, Citigroup <C.N>
slipped more than 23 percent to $6.40 and Bank of America
<BAC.N> shed 14 percent.
Big U.S. homebuilders and real estate companies also fell
sharply. The benchmark MSCI U.S. REIT index <.RMZ> fell more
than 13 percent, while the Dow Jones U.S. Home Builders index
<.DJUSHB> was off almost 11 percent.
The Dow Jones industrial average <> closed down 427.47
points, or 5.07 percent, at 7,997.28. The Standard & Poor's 500
Index <.SPX> was down 52.54 points, or 6.12 percent, at 806.58.
The Nasdaq Composite Index <> was down 96.85 points, or
6.53 percent, at 1,386.42.
In Europe, banks and commodity shares led the market
lower.
A profit warning from BASF <BASF.DE>, the world's top
chemicals maker by revenue, the second time in two months, also
was drag. BASF said it would cut output after a "massive"
decline in demand; its shares fell 13.7 percent.
The FTSEurofirst 300 <> index of top European shares
closed 4 percent lower at 811.99 points, and is now down about
45 percent this year.
"The outlook is still very poor and the profit warning from
BASF didn't help sentiment," said Edmund Shing, a strategist at
BNP Paribas in Paris.
A 1.6 million barrel rise in crude oil inventories, twice
analysts' expectations, was just another sign in the weak
prospects for world growth.
"With no end in sight for the global economic turmoil,
traders continue to focus on the lack of demand heading into
2009," said Jonathan Kornafel, Asia director of U.S.-based
options trader Hudson Capital Energy. "It is becoming quite
evident that demand may actually drop from 2008 to 2009."
U.S. crude <CLc1> settled down 77 cents at $53.62 a barrel,
the lowest settle since Jan. 22, 2007, after forecasts for
colder weather in the United States sent prices up earlier.
London Brent <LCOc1> fell 12 cents to settle at $51.72 a
barrel, the lowest settle since May 31, 2005.
Analysts said many investors are staying out of the markets
until the depth of a world recession becomes clearer. The
resultant thin volume is exaggerating price moves.
"The truth is we're seeing very poor liquidity and my sense
is that a lot of people have taken their toys and gone home,"
said Firas Askari, head of currency trading at BMO Capital
Markets in Toronto.
Growing stock losses has fueled demand for longer debt
maturities as investors scramble for low-risk investments that
offer returns above inflation. Euro zone government bond
futures sprinted to their highest prices since March 2006.
The benchmark 10-year U.S. Treasury note <US10YT=RR> gained
44/32 in price to yield 3.37 percent. The 2-year U.S. Treasury
note <US2YT=RR> rose 3/32 in price to yield 1.09 percent.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.67 percent at 87.69. Against
the yen, the dollar <JPY=> fell 1.08 percent at 95.91.
The euro <EUR=> fell 0.81 percent at $1.2519.
U.S. gold futures ended slightly higher, erasing sharp
early session gains
The December gold contract <GCZ8> settled up $3.30 at
$736.00 an ounce in New York.
Overnight in Asia Japan's Nikkei average <> slipped
0.7 percent, while the MSCI index of Asia-Pacific stocks
outside of Japan <.MIAPJ0000PUS> fell 1.1 percent and was not
far from a four-and-a-half-year low hit last month.
(Reporting by Ellis Mnyandu, Richard Leong and Steven C.
Johnson in New York and Atul Prakash, Emelia Sithole-Matarise
and Ikuko Kao in London; writing by Herbert Lash; Editing by
Leslie Adler)
