(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Sept 16 (Reuters) - Investors dumped equities,
oil and emerging market assets on Tuesday and rushed into
safe-haven debt as insurer American International Group took
center stage in an escalating global financial crisis.
Government debt prices jumped on heightened fears about the
global financial system and growing bets the Federal Reserve
would slash benchmark U.S. interest rates on Tuesday after a
meeting of its monetary policy-makers.
The low-yielding yen rallied and safe-haven government
bonds surged, sending the 30-year U.S. Treasury yield below 4
percent for the first time since the early 1960s.
A global exodus from risky assets extended into a second
day as investors worried about AIG's <AIG.N> ability to secure
the capital necessary to avert more credit agency downgrades.
Concerns the U.S. government would again refuse to provide
a financial lifeline drove worries about AIG after federal
officials balked at bailing out Lehman Brothers <LEH.N>,
forcing the 158-year-old Wall Street icon to file for
bankruptcy on Monday.
Shares of AIG were down 35 percent in mid-morning New York
trading at $3.09, having been down as much as 68 percent on
Tuesday after falling more than 60 percent on Monday.
"A lot is riding on AIG," said Andre Bakhos, president of
Princeton Financial Group in Princeton, New Jersey. "The longer
we go without a tentative deal to inject capital into AIG, the
worse things will get."
The Dow Jones industrial average <> was down 24.67
points, or 0.23 percent, at 10,892.84. The Standard & Poor's
500 Index <.SPX> was down 7.09 points, or 0.59 percent, at
1,185.61. The Nasdaq Composite Index <> was down 5.96
points, or 0.27 percent, at 2,173.95.
Tame readings on U.S. consumer prices in September and
tumbling oil prices helped assuage inflation worries and
reinforced the view that Fed policy-makers will turn their
focus to the market turmoil.
"The Fed has the blanket to ease because of this CPI
number. Bonds are flying. Customers and their mothers are
running scared," said Michael Franzese, head of government
trading with Standard Chartered in New York.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
28/32 in price to yield 3.31 percent. The 30-year U.S. Treasury
bond <US30YT=RR> gained 1-27/32 to yield at 3.94. percent. Bond
prices and yields move inversely.
Oil fell more than 4 percent on rising concern that market
turmoil will further undermine demand and send investors into
safer havens. Reports that U.S. oil infrastructure had escaped
major damage from Hurricane Ike helped push crude prices down.
"If the economic turmoil continues, demand will continue to
drop," said Jonathan Kornafel, Asia director at U.S.-based
options trader Hudson Capital Energy. "It's a bit of panic in
the markets."
U.S. light sweet crude oil <CLc1> was off $3.32 at $92.39 a
barrel.
Gold fell nearly 2 percent alongside a sharp drop in oil,
before turning higher. Spot gold prices <XAU=> rose $19.95 to
$783.40 an ounce.
Gold normally gains on safe-haven buying during financial
crises, but portfolio managers have been selling assets across
the board after Leman's bankruptcy filing.
Platinum slipped more than 5 percent to its lowest since
the end of 2006 on growing fears that slower growth could
further slam demand from automakers.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.66 percent at 79.005. Against the yen,
the dollar <JPY=> fell 3.68 percent at 103.95.
The euro <EUR=> fell 0.08 percent at $1.4215.
Russia's stock exchange suspended trade for one hour, with
the MICEX index <> off 16.6 percent in the sharpest one-day
percentage drop since the 1998 financial crisis, Reuters data
showed. Liquidity fears drove the plunge, an exchange official
said.
Asian shares plunged overnight, hit by a wave of selling in
the financial sector. Tokyo's Nikkei share average <>
slumped 4.95 percent to its lowest in three years.
MSCI's index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> fell 4.8 percent to the lowest since August
2006. It is now down 44 percent from a peak last October.
(Reporting by Steven C. Johnson, Ellis Mnyandu and Richard
Leong in New York and Matthew Robinson and Agnieszka Flak in
London; Writing by Herbert Lash; Editing by James Dalgleish)
