* Global stocks plunge on economic, company profit worries
* US bonds rebound in safe-haven bid, fiscal fears persist
* Crude oil prices rise sharply after almost 10 pct drop
* Dollar at 7-1/2-year peak vs pound, euro at 6 week low
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Jan 20 (Reuters) - Global stocks plunged and bond
prices fell on Tuesday as fears about a deep recession and a
battered financial sector gave President Barack Obama a
sobering welcome on his first day in office.
The benchmark S&P 500 and Nasdaq market both fell more than
5 percent as equity prices crashed through key support levels
holding Wall Street back from testing lows set in late
November, the nadir so far of the bear market.
U.S. Treasuries turned mostly positive as the big stock
losses, led by plunging bank shares in both the United States
and Europe, revived a bid for safe-haven government debt.
But longer-date bonds fell on worries about a rising supply
of debt needed to fund government bailouts of the financial
sector and to lift economies from a sharp downturn.
The euro traded below $1.2900 for the first time since Dec.
10 on concern that the euro zone will suffer a deep recession.
Optimism over Obama, who was sworn in as the 44th U.S.
president in Washington, also boosted the dollar.
Sterling fell to a 7-1/2-year low after the Royal Bank of
Scotland on Monday announced the biggest loss in British
corporate history, setting a negative tone for the financial
sector both in Europe and the United States.
Worries about the financial spread after State Street Corp
<STT.N>, the world's biggest money manager for institutions, on
Tuesday said it needs to raise capital, dragging U.S. banking
indexes to lows last seen in 1995.
"Stocks are getting crushed because of the never-ending
tragedy that has fallen upon the banking sector," said Tom
Sowanick, chief investment officer of hedge fund Clearbrook
Financial LLC in Princeton, New Jersey.
State Street's stock fell 59 percent while shares of Bank
of America <BAC.N> shed 29 percent and Citigroup <C.N> fell 20
percent, hitting their lowest levels since the early 1990s.
U.S. markets had been closed on Monday for the Martin
Luther King, Jr. holiday.
European banking shares also fell heavily, extending
Monday's slide, with Lloyds Bank <LLOY.L> sliding 31 percent,
Barclays <BARC.L> down 17 percent and both BNP Paribas
<BNPP.PA> and Societe Generale <SOGN.PA> off 13 percent.
"Once you have lost confidence, it takes four to five times
longer to regain confidence," said Franz Wenzel, strategist at
AXA Investment Managers in Paris.
The environment remains shaky and more write-downs from bad
loans are likely from last year's fourth quarter and the first
quarter of 2009, Wenzel said.
The Dow Jones industrial average <> closed down 332.13
points, or 4.01 percent, at 7,949.09. The Standard & Poor's 500
Index <.SPX> fell 44.90 points, or 5.28 percent, at 805.22. The
Nasdaq Composite Index <> shed 88.47 points, or 5.78
percent, at 1,440.86.
In Europe, the FTSEurofirst 300 <> index of top
European shares closed down 2.12 percent, or 16.75 points, at
774.48.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 1.29 percent at 86.236. Against
the yen, the dollar <JPY=> fell 0.95 percent.
The euro <EUR=> fell 1.69 percent at $1.2888.
"The inauguration is crystallizing all expectations that
the U.S. economy will be the first to recover from the
recession," said Marco Annunziata, global chief economist at
UniCredit, Italy's second-biggest bank, in London.
The dollar, however, pared gains against the euro when
Obama failed to disclose details on how he plans to address the
economic crisis.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
11/32 in price to yield 2.38 percent. The 30-year U.S. Treasury
bond <US30YT=RR> fell 38/32 in price to yield 2.97 percent.
The 2-year Treasury note's price rose 1/32 for a yield of
0.71 percent <US2YT=RR>, versus 0.73 percent late Friday.
In Europe, investors demanded record high premiums to buy
several non-benchmark German debt on worries there could be
more downgrades after Standard & Poor's cut the credit ratings
of both Spain and Greece recently.
Oil prices jumped 6 percent as traders sought to square
positions before the expiration on Tuesday of February futures
contracts.
U.S. February crude <CLc1> settled up $2.23 at $38.74 a
barrel, while March crude fell $1.73 to $40.84 a barrel. London
Brent <LCOc1> fell 88 cents to settle at $43.62 a barrel.
"There's a short-squeeze play going on ahead of February
crude's expiration as there are still some traders heavy with
shorts on this last trading day for the contract," said Phil
Flynn, an analyst at Alaron Trading in Chicago.
Gold rose, with spot prices <XAU=> gaining $20.20 to
$855.60 an ounce.
"It looks like they are waking up to the situation of the
banking crisis. It's flight to quality, without a doubt. The
rest of the world must be really going off the deep end," said
Jonathan Jossen, a gold options floor trader.
The MSCI index for Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> slid 3.2 percent. Japan's Nikkei <> fell
2.3 percent.
(Reporting by Leah Schnurr, Ellen Freilich, Nick Olivari in
New York and Atul Prakash, Jon Hopkins, Joe Brock, Dominic Lau,
Ian Chua and Jan Harvey in London; writing by Herbert Lash;
Editing by Leslie Adler)
