* Global stocks slump; S&P 500 slides below key 800 level
* US dollar at 10-week high on eastern Europe warning
* Oil falls more than 7.0 percent on demand concerns
* Gold hits record high in many currencies, including euro
* Government bonds rally on aversion to risky assets
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Feb 17 (Reuters) - The accelerating global
economic downturn unnerved world markets on Tuesday, sending
U.S. stocks to their lowest point since November's bear market
lows and driving the price of gold to a seven-month high.
Deepening concerns about worldwide economic growth and the
global banking system, in particular, sent investors scurrying
to the relative safety of gold and government debt.
Oil prices fell nearly 7.0 percent and industrial metals
slid as news from Japan to Europe to the United States pointed
to dwindling global demand for commodities as economies slump.
The Dow briefly slipped through its bear market closing low
set on Nov. 20 before slightly paring losses, while the
benchmark S&P 500 closed below the key support level of 800 for
the first time since Nov. 21, when the bear market's intraday
low was set.
U.S. and European banking shares plunged, helping push
MSCI's all-country world index <.MIWD00000PUS> below 200 for
the first time since late November.
The sell-off came even as U.S. President Barack Obama
signed a $787 billion economic stimulus bill into law in
Denver. White House aides had warned Americans not to expect
instant miracles.
The KBW banking index <.BKX>, which includes most of the
largest U.S. financial institutions, plunged 10 percent,
touching its lowest point since it was launched in May 1992.
"As we retest these November lows, the reality that sets in
is that we may have another leg to go down in the economy and
the market," said Bucky Hellwig, senior vice president at
Morgan Asset Management in Birmingham, Alabama.
"Therefore we see stocks being sold off," Hellwig said.
The Dow Jones industrial average <> closedddown 297.81
points, or 3.79 percent, at 7,552.60. The Standard & Poor's 500
Index <.SPX> fell 37.67 points, or 4.56 percent, at 789.17. The
Nasdaq Composite Index <> shed 63.70 points, or 4.15
percent, at 1,470.66.
European shares closed at their lowest since Jan. 23, with
banks falling on worries of further losses and the impact of
recession in emerging Europe.
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.
Gold touched $974.90 an ounce and set record highs in many
currencies -- including the euro, sterling, the South African
rand, the Indian rupee and the Canadian and Australian
dollars.
Gold for April delivery <GCJ9> surged $25.30 to finish at
$967.50 an ounce in New York.
The yield on benchmark two-year euro zone bonds hit a fresh
low after Moody's Investors Services threatened to downgrade
euro zone banks with significant exposure to Eastern Europe.
Standard & Poor's also said it may review emerging Europe
bank ratings now that the credit crisis has limited western
European banks' ability to fund subsidiaries in the region.
"That's pretty negative for the European economic outlook
and certainly implies that the (European Central Bank) has more
work to do," said Robert Blake, senior currency strategist at
State Street Global Markets in Boston.
The euro fell to its lowest level in two-and-a-half months,
and U.S. Treasury debt prices rallied as investors scrambled
for safer havens. The benchmark 10-year note's yield fell to
2.64 percent, its lowest level since late January.
The euro <EUR=> was down 1.46 percent at $1.259, while the
dollar rose against a basket of major currencies, with the U.S.
Dollar Index <.DXY> up 1.36 percent at 87.71.
"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=> gained 0.70 percent at
92.34.
Economic news turned bleaker as a survey by a regional
Federal Reserve of factory activity in New York state fell to a
record low in February.
U.S. homebuilder sentiment held near all-time lows in
February, suggesting sales of new single-family homes would be
meager as long as mortgage foreclosures flood the market, the
National Association of Home Builders said.
"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."
U.S. crude <CLc1> for March delivery settled at $34.93 a
barrel, while London Brent crude <LCOc1> for April delivery
dropped $2.25 to settle at $41.03 a barrel.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
70/32 in price to yield 2.64 percent. The 2-year U.S. Treasury
note <US2YT=RR> rose 7/32 in price to yield at 0.86 percent.
(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)
