* Global markets sell off on credit, recession fears
* Volatility index hits intra-day high
* Morgan Stanley, Goldman Sachs slump on rating threat
* Energy shares track oil prices sharply lower
* Dow down 5.6 pct, S&P down 6.6 pct, Nasdaq off 5.2 pct
(Updates to afternoon, changes byline)
By Kristina Cooke
NEW YORK, Oct 10 (Reuters) - U.S. stocks tumbled in a
turbulent session on Friday, as panicked investors dumped
stocks in a global sell-off on mounting fears that frozen
credit markets would push the world into recession.
Uncertainty about what steps the finance chiefs of the
world's major economies will take over the weekend to confront
the financial crisis further fueled the market's anxiety.
Stocks added to losses after a G7 official said the Group of
Seven major nations is unlikely to adopt Britain's proposal to
guarantee lending between banks when it meets on Friday.
Shares of Morgan Stanley <MS.N> and Goldman Sachs <GS.N>
tumbled after credit ratings service Moody's said it might cut
their ratings, reviving concerns about the viability of their
banking models. []
Energy companies dragged on the broader market as oil
prices fell 10 percent to a 13-month low below $78 a barrel on
fear a faltering global economy will curb demand for crude.
Volume was heavy across the board and trading was
extremely volatile. Shortly after the open, the Dow Jones
industrial average slid about 8 percent to break below 8,000
for the first time since April 1, 2003, and then briefly
turned positive, before turning sharply lower again.
With less than an hour and a half left in the trading
session, the benchmark S&P 500 index was on track for its
worst week on record.
"It's a disaster. It's far worse than people thought it
was going to be," said Dave Rovelli, managing director of U.S.
equity trading at Canaccord Adams in New York.
The Dow Jones industrial average <> dropped 482.83
points, or 5.63 percent, to 8,096.36. The Standard & Poor's
500 Index <.SPX> slid 60.19 points, or 6.61 percent, to
849.73, close to its levels in October 2002. The Nasdaq
Composite Index <> was down 85.89 points, or 5.22
percent, at 1,559.23, near its levels in June 2002.
Chaos awaited finance ministers and central bankers from
the Group of Seven as they gathered to Washington to
contemplate a next step after joint interest-rate cuts,
individual liquidity injections, a $700 billion U.S. bailout
for the financial sector and government plans to take equity
stakes in banks have failed to restore investor confidence.
Uncertainty about what authorities will do next to
contain fallout from the credit turmoil contributed to the
fear, driving the Chicago Board Options Exchange Volatility
Index <.VIX> up 18 percent to another intraday record high at
75.92.
Morgan Stanley shares dropped almost 39 percent to $7.60,
while Goldman Sachs shares fell 18.2 percent to $82.89.
Investors worry that a cut in ratings would further hamper the
companies' ability to raise capital.
Shares of Exxon Mobil <XOM.N> were a top drag on the Dow,
sliding 14.4 percent to $58.19, as shares of Chevron <CVX.N>
plummeted 11.5 percent to $56.64.
The S&P energy index <.GSPE> was down 14.6 percent, while
the financial index <.GSPF> declined 1.7 percent.
A pullback in the cost for banks to borrow overnight
dollars from, or among, each other tempered some market
anxiety but the cost to borrow dollars over three months shot
higher again, indicating credit markets effectively remain
jammed.
In Asia, Japan's Nikkei <> tumbled 9.6 percent, while
in Europe, major indexes ended down more than 7 percent.
U.S. front-month <CLc1> plunged over $9 to as low as
$77.38 a barrel, a 13-month low, on the New York Mercantile
Exchange.
(Reporting by Kristina Cooke; Editing by Jan Paschal)
