* Panic selling hits U.S., European, Asia bourses
* MSCI world equity index sees five-year low
* Dash for cash even hits government bonds
* Dollar rises on scramble for cash
(Recasts lead, updates prices)
By Pedro Nicolaci da Costa
NEW YORK, Oct 10 (Reuters) - Global stocks dove head first
to five-year lows on Friday at the end of a brutal week as even
the traditional safe-havens of gold and government bonds
suffered as fear-stricken investors sought refuge in cash.
Investors were looking to an imminent meeting of Group of
Seven finance ministers in Washington, D.C., for a policy
response to the deepening global credit crisis.
The dollar rose to a 15-month high against a basket of
major currencies as investors scrambled for cash preferably in
the world's reserve currency.
"We are not used to seeing stocks implode and Treasuries
sell off," said Josh Stiles, senior bond strategist at
IDEAglobal. "People are saying they don't even want to be in
Treasuries now, they need the cash."
In U.S. equities, the Dow Jones slid as much as 8 percent
to break below 8,000 for the first time since April 1, 2003,
and bringing its losses for the week to more than 20 percent.
Morgan Stanley, the No. 2 independent investment bank, plunged
37 percent on doubts that a planned $9 billion cash infection
from Japan's Mitsubishi UFJ Financial Group Inc would be enough
to enable it to ride out the current crisis.
The Dow Jones industrial average <> was down 360.01
points, or 4.20 percent, at 8,219.18. The Standard & Poor's 500
Index <.SPX> was down 44.48 points, or 4.89 percent, at 865.44.
The Nasdaq Composite Index <> was down 69.84 points, or
4.25 percent, at 1,575.28.
The S&P energy index slumped 9.36 percent, as energy shares
slid with a sharp drop in crude oil prices as fears rose over
cooling demand for energy.
European shares closed out their worst week ever, with the
pan-European FTSEuroFirst 300 index <> shedding 22
percentfor the week after closing down 7.6 percent.
The FTSEurofirst 300 closed at 851.23 points, its lowest
close since July 2, 2003.
"The new lows we've seen in stock markets this week are the
result of panic selling," said Joost van Leenders, asset
allocation specialist at Fortis Investments.
The DJ Stoxx European bank index <.SX7P> fell 10.6 percent,
with Royal Bank of Scotland <RBS.L> down more than 20 percent
while Credit Suisse <CGSN.VX> and Deutsche Bank <DBKGn.DE> lost
over 16 percent each.
The MSCI world equity index <.MSCIEF> fell more than 4.0
percent at one point to a five-year low, losing a fifth of its
value this month alone. The index has lost 43 percent since
January, on track for its worst yearly performance in 20
years.
In U.S. government bonds, only short-term Treasury bills,
which are considered pretty much a cash equivalent, were able
to catch a bid.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
trading 24/32 lower in price for a yield of 3.88 percent from
3.78 percent late on Thursday. The only buying of debt was on
the very short end of the Treasury curve, where one-month
T-bill yields were trading all the way down near 0.07 percent.
The U.S. dollar rose as investors moved out of riskier
markets.
Earlier the flight-to-safety sent the yen to a more than
six-month high against the U.S. dollar and a three-year peak
versus the euro. The Japanese currency also rose sharply
against higher-yielding units such as the Australian and New
Zealand dollars, as carry trades were unwound.
"As long as markets remain risk averse to this degree, it
is difficult to see the U.S. dollar making a material reversal
despite many of the issues currently gripping global markets
being home grown," said Dustin Reid, senior currency strategist
at RBS Global Banking & Markets in Chicago.
Tensions persisted in the money market, where the cost of
borrowing dollars for three months rose to 4.81875 percent at
the fixing in London.
In currency markets, increased risk aversion left the yen
as the currency of choice, with the euro earlier falling to a
three-year low of 132.80 yen and the dollar hitting a
6-1/2-month low of 97.92 yen.
In midday trading in New York, the Intercontinental
Exchange's U.S. dollar index, which tracks the value of the
greenback against a basket of six currencies, rose 0.7 percent
to 82.105 <.DXY> , after rising as high as 82.223, the
strongest level since June 2007.
The euro fell nearly 1.0 percent against the dollar at
$1.3468 <EUR=>.
Fears about Britain's vulnerability to the financial crisis
sent the pound tumbling to a five-year low of $1.6802.
U.S. crude oil fell below $80 to a one-year of $78.61, and
was trading down 6.5 percent at $80.11 in early afternoon at
low 5 percent to a one-year low of $81.13 <CLc1> a barrel.
Gold prices slid as the equities rout sparked a sell-off in
commodities. Spot gold <XAU=> was down 1.8 percent at $870 an
ounce on the rally in the dollar and profit-taking.
G7 TO THE RESCUE?
Investors are looking to the weekend's meeting of leaders
from the Group of Seven major industrial nations. However,
hopes for a comprehensive deal to help to solve the crisis were
fading fast.
"It is not clear we will see much from the G7 meeting and
this will probably keep risk appetite under pressure," said Rob
Minikin, senior currency strategist at Standard Chartered.
Coordinated interest rate cuts by the Federal Reserve and
other major central banks this week failed to relieve investor
fears that the freeze in credit markets will damage banks
further and provoke a deep recession around the world.
"Essentially we're flying blind. No-one has a clue what's
going on," DZ Bank currency strategist Sonja Marten said. "The
uncertainty is too great and volatility is incredible. It's a
question of market confidence and somehow we're going to have
to get it back."
G7 leaders face huge pressure to contain the crisis.
Earlier Friday Europe and Asia saw panic selling of stocks
while oil prices fell to a one-year low as fears grew
policymakers are not making enough efforts to contain the
financial crisis.
Equity trading in Russia, Iceland, Romania, Ukraine and
Indonesia was halted .Emerging stocks fell nearly 5 percent to
a fresh three-year low.
(Additional reporting by Ellis Mnyandu, Kristina Cooke and
Chris Reese in New York and Steve Slater, Rebekah Curtis and
Jessica Mortimer in London; Editing by Leslie Adler)
