* Dollar index touches one-year high, euro at year low
* Worries about Lehman's ability to survive hits stocks
* Oil slides toward $100 a barrel on dollar, weaker demand
* Government debt prices pare gains as stocks rebound
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Sept 11 (Reuters) - The U.S. dollar scaled a
one-year high as investors dumped overseas investments on
worries about global growth on Thursday, and U.S. stocks fell
in a global rout on fears of Lehman Brothers' impact on the
financial sector.
Oil prices dropped toward $100 a barrel, hitting a
five-month low of $100.10, weighed down by a stronger dollar
and concerns over weakening demand.
Risk aversion stung the euro and broadly boosted the
low-risk and low-yielding yen. The euro tumbled to $1.3891
<EUR=>, its lowest level since September 2007.
Shares of Lehman tumbled more than 45 percent at one point,
and the stock of three other major U.S. financial institutions
-- insurer American International Group <AIG.N> , Merrill Lynch
& Co <MER.N> and Washington Mutual <WM.N> -- suffered
double-digit percentage losses.
European stocks also fell on fears about fallout from
Lehman.
The latest flare-up of financial sector fears came a day
after Lehman Brothers <LEH.N> posted a $3.93 billion loss and
failed to announce it had raised desperately needed capital.
Investors fear an unstable financial sector would hurt the
economy as mounting mortgage losses restrain bank lending, a
key source of business investment and consumer spending.
"There are worries about the survivability of Lehman," said
Giri Cherukuri, head trader at OakBrook Investments in Lisle,
Illinois. "People are evaluating the news from Lehman from
yesterday, and they are thinking that Lehman is in big trouble
again. The fallout is going throughout the financial stocks."
AIG <AIG.N>, the world's biggest insurer which has
substantial exposure to the mortgage market, fell 14 percent;
Merrill dropped 13 percent; and Washington Mutual, the biggest
U.S. savings and loan, pared earlier big losses to trade down 8
percent.
Washington Mutual, which is already under special
regulatory supervision, fell on fears it would not be able to
attract a buyer or raise enough cash to cover soaring mortgage
losses.
Before 1 p.m., the Dow Jones industrial average <> was
down 38.02 points, or 0.34 percent, at 11,230.90. The Standard
& Poor's 500 Index <.SPX> was down 2.67 points, or 0.22
percent, at 1,229.37. The Nasdaq Composite Index <> was up
1.83 points, or 0.08 percent, at 2,230.53.
European shares fell for a third session in a row amid
investor unease about financials. Banks were the biggest
sectoral loser in Europe, with the DJ banking index <.SX7P>
down 1.86 percent.
The FTSEurofirst 300 <> index of top European shares
ended down 0.65 percent at 1,140.71 points. The benchmark is
down more than 24 percent so far this year.
"Overall on a 12-month view, the financial sector is
unlikely to be a strong performer," said Ronan Carr, European
strategist at Morgan Stanley.
"The profit outlook for banks will continue to be
difficult, bad debt is likely to rise and the funding backdrop
will remain difficult."
Shares of Societe Generale <SOGN.PA> fell 3.1 percent,
Fortis <FOR.BR> shed 2.1 percent, BNP Paribas <BNPP.PA> dropped
1.1 percent, Dexia <DEXI.BR> slipped 4.1 percent and Credit
Agricole <CAGR.PA> shed 2.3 percent.
U.S. Treasuries pared gains to trade mostly unchanged as
investors bet on a Lehman stabilization plan. Two-year euro
zone government bonds rose as jitters about the fragile U.S.
banking system fueled demand for safe and liquid paper.
But a late bounce in European and U.S. equities from
earlier steep lows pushed the 10-year Bund future down on the
day after having traded in positive territory most of the
session.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
4/32 to yield 3.62 percent. The 30-year U.S. Treasury bond
<US30YT=RR> rose 9/32 to yield 4.21 percent.
"Oil is helping everything across the board. We are seeing
more of a rotation out of commodities into stocks," said
Anthony Conroy, head trader at BNY ConvergEx, an affiliate of
the Bank of New York Mellon Corp.
Oil fell from a rising dollar and a report from the
International Energy Agency, which lowered its oil demand
growth forecasts due to a slowing global economy.
U.S. government data on Wednesday showed falls in oil
product demand.
U.S. light sweet crude oil <CLc1> fell 59 cents to $101.99
a barrel.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.23 percent at 80.22. Against the yen,
the dollar <JPY=> fell 0.93 percent at 106.60.
The euro <EUR=> fell 0.41 percent at $1.3927.
Analysts said the uncertain global economic outlook was
causing U.S. investors to liquidate assets in emerging markets,
where inflation was also becoming a problem.
"We believe a lot of the dollar buying we are seeing
reflects U.S.-based investors selling overseas assets and
bringing the money home," said Sophia Drossos, a currency
strategist at Morgan Stanley in New York. "It appears to be
concentrated more in emerging markets, judging from the
weakness in some of those equity markets."
Gold, silver and platinum group metals all steepened recent
days' losses, pulled lower by the dollar's strength, a drop in
oil and the exit by investors from commodities to cash.
Gold prices <XAU=> fell $8.70 to $743.30 an ounce.
Shares overnight in Asia fell broadly, with persistent
instability in the financial sector driving stocks outside
Japan tumbling to their lowest in almost two years.
Tokyo's Nikkei share average <> closed down 2 percent
at a six-month low and MSCI's Asia Pacific ex-Japan index
<.MIAPJ0000PUS> dropped 2.8 percent to its lowest since October
2006.
(Reporting by Ellis Mnyandu, Lucia Mutikani, Chris Reese and
Carole Vaporean in New York, and Atul Prakash and Ikuko Kao in
London; Writing by Herbert Lash; Editing by Leslie Adler)
