* Global stocks slump; S&P 500 slides below key 800 level
* Dollar at 2-1/2 month high vs euro on E. Europe warning
* Oil falls more than 7 percent on global demand concerns
* Gold hits record high in many currencies, including euro
* Gov't bonds rally on mounting aversion to risky assets
(Recasts with U.S. markets, changes dateline; previous
LONDON)
By Herbert Lash
NEW YORK, Feb 17 (Reuters) - Global markets fell sharply on
Tuesday as news from Japan and Europe pointed to a deepening
world downturn, driving U.S. stocks to their lowest point since
November's bear market lows and gold to almost a 7-month high.
Wherever investors turned, the outlook looked grim on new
signs of slowing economic growth. Oil prices fell more than 7
percent and industrial metals slid as the data pointed to
dwindling demand from around the globe for commodities.
Deepening concerns about the economy and the global banking
system sent investors to safer havens, especially gold and
government debt. Stocks fell, with MSCI's all-country world
index <.MIWD00000PUS> falling below 200 for the first time
since late November -- the lows so far of the bear market.
The benchmark S&P 500 was down more than 4 percent and
below the key support level of 800 for the first time since
Nov. 21, the bear market intraday low for U.S. stocks.
About 1 p.m. (1800 GMT), the Dow Jones industrial average
<> was down 261.65 points, or 3.33 percent, at 7,588.76.
The Standard & Poor's 500 Index <.SPX> was down 32.42 points,
or 3.92 percent, at 794.42. The Nasdaq Composite Index <>
was down 56.83 points, or 3.70 percent, at 1,477.53.
European shares closed at their lowest since Jan. 23, with
banks falling on worries of further losses and the impact of a
recession in emerging Europe.
Gold set record highs in a number of currencies --
including the euro, sterling, the South African rand, the
Indian rupee and the Canadian and Australian dollars.
Gold touched $962.95 an ounce, its highest since July 22,
while the yield on benchmark euro zone bonds hit a fresh low
after Moody's warned the recession in emerging Europe may hurt
the ratings of local banks and western European parents.
"Risk aversion is still the name of the game," said Bob
Maes, fixed-income strategist at KBC in Brussels.
A report from Moody's Investors Service about European
banks sent a numbing chill through markets. The report reminded
investors of the crucial role a handful of Western banks have
in keeping the former Communist bloc afloat after bankrolling
its rampant growth in the boom years of 2005 to 2007.
The euro fell to its lowest level in two-and-a-half months
against the dollar and government debt prices shot higher.
Austrian government bonds were among the worst performers.
The 10-year Austrian/Bund spread <AT10YT=RR><EU10YT=RR> widened
by 21 basis points to 134 basis points.
U.S. Treasury debt prices rallied as investors scrambled
for safer havens. The benchmark 10-year note's yield fell
briefly below 2.66 percent to the lowest level since late
January.
The euro <EUR=> was down 1.59 percent at $1.2574, while
the dollar was up against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 1.49 percent at 87.816
"There is no doubt that markets have decided that emerging
Europe is the subprime of Europe and now everybody is running
for the door," said Lars Christensen of Danske Bank.
Against the yen, the dollar <JPY=> was up 0.85 percent at
92.48
Economic news turned bleaker as a survey by a regional
Federal Reserve bank showed factory activity in New York state
fell to a record low in February.
The news came a day after the Japanese government reported
that gross domestic product in Japan sank in the last quarter
by its most since the first Arab oil embargo in 1974,
shattering hopes for an export-led recovery any time soon.
The sell-off in global markets also came as U.S. President
Barack Obama was set to sign a $787 billion economic stimulus
bill into law in Denver, but presidential aides warned
Americans not to expect instant miracles.
"There's a lack of good news out there," said Howard
Wheeldon, strategist at BGC Partners in London. "There are a
lot of things going on, but no quantifiable certainty that
anything such as the Obama package will make a real difference
soon enough."
The FTSEurofirst 300 <> index of top European shares
fell 2.5 percent to close at 765.43 points, down 7.9 percent
for the year.
Banks took the most points off the index after the Moody's
report. Societe Generale <SOGN.PA> fell 9.6 percent to its
lowest close in more than 10 years, ahead of Wednesday
results.
U.S. oil fell to about $35 a barrel as the grim economic
indicators kept the focus on the worldwide slump in demand,
outweighing production cutbacks by the Organization of
Petroleum Exporting Countries.
U.S. light sweet crude oil <CLc1> fell $2.68 to $34.83 a
barrel.
"The economic outlook will continue to dominate the first
half of 2009. The United States, eurozone and Japan are in
synchronized recession," said Harry Tchilinguirian, an oil
analyst at BNP Paribas.
(Reporting by Ellis Mnyandu, Wanfeng Zhou and John Parry in
New York; Brian Gorman, Ian Chua, Alex Lawler, Jan Harvey,
Emelia Sithole-Matarise and Sue Thomas in London; Boris
Groendahl in Vienna and Jan Strupczewski in Brussels; writing
by Herbert Lash; Editing by Kenneth Barry)
