* Global stocks slide on fears recovery will stumble
* Oil falls on demand concerns, festering debt worries
* Bonds rally on flight to safety after U.S. jobless data
(Updates with close of U.S. markets)
By Herbert Lash
NEW YORK, May 20 (Reuters) - Global stocks and commodities
sold off on Thursday as investors dumped risky assets and
rushed into safe-havens on fears fiscal tightening is on the
rise and will snuff the world's nascent recovery.
U.S. stock indexes dropped 3.6 percent or more, with the
benchmark Standard & Poor's 500 Index now showing a correction.
The index is off 12 percent from its 2010 closing high in
April.
At one point the euro fell to its lowest against the yen
since November 2001, hurt by seeming disunity among euro zone
leaders on how to address the region's debt crisis.
But the euro later rebounded as investors who had bet
against the single currency were forced to buy back euros to
cut their losses in what is known as a "short squeeze."
U.S. government debt prices soared in heavy trading as
investors sold liquid assets and snapped up safe-havens. Gold
prices dropped, but the losses in equity markets spurred demand
for the safe-haven metal.
"There is money flowing out of Europe and into U.S.
Treasuries, and that has been going on for days," said Raymond
Remy, U.S. head of fixed income at Daiwa Securities in New
York.
The Chicago Board Options Exchange Volatility index <.VIX>,
often referred to as Wall Street's fear gauge, surged almost 30
percent to its highest closing level since March 2009.
Fiscal tightening in debt-strapped developed countries will
slow growth and lower inflation across the world, which is
increasing selling pressure in financial markets, said Bill
Gross, co-chief investment officer at Pimco. []
Gross told Reuters financial markets are exhibiting "a
mini-relapse of a flight to liquidity as hedge funds and other
leveraged positions are liquidated to preserve capital."
The International Monetary Fund on Wednesday pressed Japan
to begin a "credible" fiscal program which includes a 5 percent
sales tax increase. French President Nicolas Sarkozy proposed
deficit "targets" for France.
The belt-tightening sparked investors' fears while an
unexpected jump in new U.S. jobless claims underscored the
apprehension. Volatility reigned as a sense of instability
unleashed panicky selling across markets.
Also driving anxiety were concerns over a proposed overhaul
of U.S. financial regulation, which critics say would reduce
banks' capacity to lend and broadly increase borrowing costs.
"Uncertainty has people stampeding for the exits," said
Chris Rupkey, chief financial economist at Bank of
Tokyo/Mitsubishi UFJ in New York.
The Dow Jones industrial average <> closed down 376.36
points, or 3.60 percent, to 10,068.01. The Standard & Poor's
500 Index <.SPX> slid 43.46 points, or 3.90 percent, to
1,071.59. The Nasdaq Composite Index <> lost 94.36 points,
or 4.11 percent, to 2,204.01.
U.S. oil prices fell for the seventh in eight sessions.
The expiring June contract on the New York Mercantile
Exchange <CLMO> tumbled nearly 3 percent in thin trade as
remaining open interests were either rolled to the next month
or sold, in an effort to avoid physical delivery.
U.S. crude <CLc1> for June delivery settled down $1.86 at
$68.01 a barrel, down more about 22 percent from the 19-month
of $87.15 hit on May 3.
The euro rose against the dollar, boosted by its gains
versus the Swiss franc, with traders bracing for the
possibility European monetary officials may intervene to prop
up the single currency. []
The euro <EUR=> was up 0.64 percent at $1.2507, while the
dollar was down against major. The U.S. Dollar Index <.DXY> as
down 0.69 percent at 85.798 and against the yen, the dollar
<JPY=> was down 2.24 percent at 89.58.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
41/32 in price to yield 3.22 percent.
The sell-off initially was driven by fear that Europe's
debt crisis would hobble economic growth and then accelerated
on signs governments need to rein in deficit spending.
Fears other euro zone countries will follow Germany's move
to ban short selling in some stocks and bonds helped propel a
widespread aversion to risk.
The Reuters-Jefferies CRB index <.CRB>, a global benchmark
for commodities, at one point slumped to 8-1/2 month lows.
Spot gold prices <XAU=> fell $8 to $1182.70 an ounce.
Worries over the euro zone hammered Asian stocks, driving
MSCI's index of Asia-Pacific shares outside of Japan
<.MIAPJ0000PUS> down 2.4 percent to an eight-month low.
Japan's Nikkei average <> closed at a new three-month
low despite data that showed Japan's economy grew 1.2 percent
in the first quarter, outpacing its euro zone and U.S. peers.
[]
(Reporting by Jennifer Ablan, Leah Schnurr, Gene Ramos, Nick
Olivari, Emily Flitter in New York; Atul Prakash, Ian Chua and
William James in London; Writing by Herbert Lash; Editing by
Andrew Hay)
