Global stocks slump but trim losses

A foreign exchange dealer watches a monitor as she talks on the phone at a trading room in Tokyo, January 22, 2009.

NEW YORK (Reuters) - Fear of bank nationalizations and more weak economic data battered global markets on Friday, with stock markets plunging worldwide and investors moving into safe havens, driving up the price of gold to over $1,000 an ounce.

U.S. stocks were saved from closing on their lows for the session when the White House said late in the day that it still backed a privately held banking system, despite concern about the erosion of banks' capital.

But financial markets remain concerned that the global economic slump, sparked in mid-2007 by falling U.S. housing market, is continuing to take its toll on banks, despite efforts by many governments to shore up their banking systems.

Former Federal Reserve Chairman Paul Volcker, now a top adviser to President Barack Obama, said the global economy may be deteriorating even faster than during the Great Depression.

"There's a little bit of panic out there. Equities are setting new lows and gold is the place to run to," said Robert MacIntosh, chief economist at Eaton Vance in Boston.

Gold futures for April delivery in New York settled up $25.70 at $1,002.20 an ounce.

The White House support for keeping major U.S. banks in private hands came just as S&P 500 index, a broad measure of the U.S. equity market, was poised to break the 11 year lows seen last November.

Also, CNBC television reported that the U.S. Treasury will provide some details on the Obama administration's bank rescue next week, helping financial shares cut losses.

Crude oil trimmed losses that had pushed prices below $38 a barrel, U.S. Treasuries prices gave back a strong advance, and the stock price of Bank of America Corp (BAC.N) recouped most of a plunge of more than 30 percent to close down 3.6 percent.

Citigroup Inc (C.N) also trimmed a sharp decline, but still closed down 22 percent at $1.95 a share, the first time it has closed under $2 since January 1991.

The Dow Jones industrial average .DJI closed down 100.28 points, or 1.34 percent, at 7,365.67. The Standard & Poor's 500 Index .SPX shed 8.89 points, or 1.14 percent, at 770.05. The Nasdaq Composite Index .IXIC fell 1.59 points, or 0.11 percent, at 1,441.23.

Of the 3,177 stocks that trade on the New York Stock Exchange, 590 set 52-week lows while three set 52-week highs.

The U.S. dollar ended lower against major currencies as investors sought to lock in the currency's recent steep gains ahead of the weekend. The greenback has benefited from extreme risk aversion in recent months as investors sought relative safety in dollar-denominated assets such as U.S. Treasuries.

The dollar fell against a basket of major currencies, with the U.S. Dollar Index .DXY down 1.09 percent at 86.49. Against the yen, the dollar fell 1.20 percent at 93.15.

The euro was up 1.41 percent at $1.2841.

A worsening global economic outlook continued to weigh on oil prices.

U.S. crude futures for March delivery, which expire on Friday, settled at $39.28 a barrel, down 54 cents. April Brent crude settled at $41.89 a barrel, down 10 cents.

Deepening anxiety about ailing banks spurred a rally in U.S. and euro-zone government debt prices.

"The market has bigger fish to fry as it contemplates more long weekends as big decisions on the banking sector are confronted," said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut.

The benchmark 10-year U.S. Treasury note rose 20/32 in price to yield 2.78 percent. The 2-year U.S. Treasury note added 2/32 in price to yield 0.9484 percent.

A rout in bank shares and a surprise slide in euro zone services and manufacturing activity in February, suggesting the first quarter's economic contraction may be as bad as or worse than the end of 2008, sent European indexes lower.

European shares plunged, with the FTSEurofirst 300 .FTEU3 index of top European shares falling 3.7 percent to end at 735.74 points -- its lowest closing level since March 2003.

(Reporting by Ellis Mnyandu, Chris Reese, Wanfeng Zhou, Nick Olivari, Rebekah Kebede and Frank Tang in New York, Lucia Mutikani in Washington, Jan Harvey and George Matlock in London and Peter Starck in Frankfurt; writing by Herbert Lash)