* Global markets sell off on credit, recession fears
* Volatility index hits another record high
* Morgan Stanley, Goldman Sachs drop on rating threat
* Energy shares track oil prices sharply lower
* Dow down 1.5 pct; S&P 500 down 1.2 pct, Nasdaq up 0.3 pct
(Updates to close)
By Kristina Cooke
NEW YORK, Oct 10 (Reuters) - The Dow and the S&P 500
dropped for an eighth session on Friday, as a dramatic
late-day comeback stalled out to cap the worst week ever for
the S&P amid more anxiety about the condition of credit
markets and the threat of a global recession.
Even in a market whose recent hallmark has been
volatility, Friday's action was exceptional. The Dow lurched
back and forth in a 1,000-point range and a late pop in
technology shares helped the Nasdaq eke out its first gain of
the month. Volume on the New York Stock Exchange was more than
double the average of 2008 so far.
But bets that finance chiefs of the world's major
economies will take action over the weekend were not enough to
keep the Dow and the S&P 500 out of the red. Finance leaders
from the world's rich nations pledged a coordinated response
to the credit crisis, but stopped short of backing a British
plan to guarantee lending between banks.
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 weighed on the market as oil prices fell
10 percent to a 13-month low below $78 a barrel on fear a
faltering global economy will cut demand for crude.
"A lot of people look at this crazy selling and believe we
are forming a bottom, particularly when you have all this
despondency, capitulation and utter despair. But then ...
people are still scared and selling," said Brian Gendreau, an
investment strategist in New York for ING Investment
Management Americas.
The Dow Jones industrial average <> fell 128.00
points, or 1.49 percent, to 8,451.19, while the Standard &
Poor's 500 Index <.SPX> dropped 10.70 points, or 1.18 percent,
to 899.22. The Nasdaq Composite Index <>, meanwhile,
edged up 4.39 points, or 0.27 percent, to 1,649.51.
The Chicago Board Options Exchange Volatility Index
<.VIX>, Wall Street's fear gauge, hit record highs again on
Friday, reflecting unprecedented investor anxiety. The VIX
surged 20.4 percent to a record intraday high at 76.94. By the
close, it had given up some gains, but was still up 9.4
percent at 69.95.
Traders cited margin calls and forced liquidations as a
key contributor to the week's sell-off in stocks.
"People are not selling for valuation reasons. They are
not selling because inflation or interest rates are headed
higher. They are selling just to raise capital," said Owen
Fitzpatrick, head of the U.S. equity group at Deutsche Bank
Private Wealth Management in New York.
For the week, both the Dow and the S&P 500 fell 18
percent, while the Nasdaq slid 15.3 percent.
Faced with the threat of a global recession and panicky
financial markets, Group of Seven members acknowledged that
they could no longer afford a country-by-country, case-by-case
approach to crisis management after 14 months of turmoil.
Recapitalizing banks was a top priority as the finance
ministers of the United States, Canada, Britain, France,
Germany, Italy and Japan met on Friday afternoon, though there
was much disagreement about how best to do that. The U.S.
Treasury Department has a $700 billion rescue plan in hand,
which it could tap to buy stakes in banks. European leaders
have yet to unite behind a similar proposal.
The G7 finance ministers are expected to issue a
communique summing up their views sometime after 6 p.m., but
heading into the afternoon meeting there was little consensus
on what they might say.
Morgan Stanley shares dropped 22.2 percent to $9.68, while
Goldman Sachs shares fell 12.4 percent to $88.80, even as the
S&P financial sub-index <.GSPF> rose 7 percent.
Shares of Exxon Mobil <XOM.N> were a top drag on the Dow,
sliding 8.3 percent to $62.36, while shares of Chevron <CVX.N>
plummeted 9.6 percent to $57.83. The S&P energy index <.GSPE>
fell 8.1 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.
Trading was heavy on the New York Stock Exchange, with
about 2.95 billion shares changing hands, sharply above last
year's estimated daily average of roughly 1.90 billion, while
on Nasdaq, about 4.17 billion shares traded, far above last
year's daily average of 2.17 billion.
Declining stocks outnumbered advancing ones on the NYSE by
2 to 1, while on the Nasdaq, they were roughly equal.
(Additional reporting by Jennifer Ablan; Editing by Jan
Paschal)
