WRAPUP 9-Global policy actions fail to halt stocks rout

* ECB buys Italian and Spanish bonds, yields tighten

* Obama says S&P action adds urgency to deficit cutting

* S&P index plunges 6.6 pct, worst since Dec. 1 2008

* Pressure mounts on Fed to stimulate U.S. economy
(Adds Bank of America, recession risks, fresh ratings cuts)

By Pedro Dacosta and Kirsten Donovan

WASHINGTON/LONDON, Aug 8 (Reuters) - Political leaders
failed to halt a global stock market rout that gathered steam
on Monday as investors lost confidence that Europe and the
United States can rein in their budgets quickly and fear spread
of a double-dip recession.

The European Central Bank swept into the bond market to buy
up Italian and Spanish debt and sling a safety net under the
euro zone's third and fourth largest economies. But bickering
persisted in Europe over a longer-term rescue plan.

In the United States, President Barack Obama called for
urgent action on the U.S. budget deficit but his proposal on
taxes was promptly rebuffed by Republicans.

The G7 finance ministers' and central bankers' pledge on
Sunday to help smooth markets if needed provided little
solace.

Selling that began in Asia and Europe accelerated in the
United States, where the broad Standard and Poor's 500 index
plunged 6.7 percent to close at 1,119.46, its worst sell-off
since Dec. 1, 2008. The Dow Jones shed 634.76 points to
10,809.85.

A huge blow to investor confidence was the Standard and
Poor's downgrade of the U.S. sovereign credit rating late
Friday, which compounded spreading concerns that the worsening
euro-zone debt crisis and a faltering U.S. economy heighten the
risks of a double-dip recession.

"People are asking, can the economy still grow in face of
all this?" said John Carey, portfolio manager at Pioneer
Investment Management in Boston, with $260 billion under
management.

Realization on both sides of the Atlantic that the
political obstacles to quick budgetary reform are so huge and
the monetary options so limited, it has deepened the
pessimism.

The worsening market turmoil puts significant pressure on
the U.S. Federal Reserve at its regular policy meeting on
Tuesday to announce some fresh measures of support for a
damaged U.S. economy. [ID:nN1E7771MV]

"If the Fed does nothing, it could prove to be a
disappointment at this point," said JP Morgan analysts.
[nN1E7771RC]

Stock losses have wiped more than $3.8 trillion from
investor wealth globally in the last eight days and sent
investors rushing for safety in the Swiss franc, the Japanese
yen and gold. In the United States, estimates of recession
risks are rising. Goldman Sachs had put them at one in three
last week, before the latest sell-off.

"This massive move in the equity market does dim the
economic outlook for the next six months," said Carl
Riccadonna, senior U.S. economist at Deutsche Bank in New York.
"We would put the recession odds at about 40 percent and about
two weeks ago they were at about a 10 percent chance."

The G7 financial policymakers from major industrialized
nations said on Sunday they stand ready to provide extra cash
if markets seize up, are consulting regularly and could
cooperate to smooth volatile FX markets if needed.

Particularly worrisome was a more than 20 percent plunge
in the shares of Bank of America (BAC.N), the largest U.S.
bank. AIG sued it for $10 billion for allegedly deceiving
investors, on top of mounting concerns about the size of its
potential losses from mortgages litigation and questions about
management. The bank has shed nearly one third of its market
value in three days. [ID:nN1E7770B6]

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

TAKE-A-LOOK-ECB to buy bonds, G7 talking [ID:nN1E776092]

TAKE A LOOK-G7 says will support markets [ID:N1E776092]

U.S. loses AAA credit rating from S&P [ID:nN1E774236]

Euro crisis graphics r.reuters.com/hyb65p

BREAKINGVIEWS-ECB's brief bazooka [ID:nL6E7J80F5]

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

ECB TO THE RESCUE

On the political front, Obama said he hoped that Standard
and Poor's stripping the United States of its prized AAA credit
rating would add urgency to U.S. budget cutting plans.

Standard and Poor's cut the ratings of credits tied to the
U.S., sovereign debt to AA-plus, namely government mortgage
agencies, clearing houses and insurers. The Treasury market
soared on Monday despite the downgrade as investors fled
stocks. [ID:nN1E7771RC]

Obama called for both tax hikes and cuts to welfare
programs as part of the $1.5 trillion in deficit reduction that
a special committee would deliver in late November. But
Republican House Speaker John Boehner once again rejected the
call, saying tax hikes were "simply the wrong approach."

Obama also spoke with Italian Prime Minister Silvio
Berlusconi and Spanish President Jose Luis Zapatero, welcoming
measures by their governments to address the economic turmoil
in Europe.

Traders estimated the ECB bought about 2 billion euros in
Italian and Spanish debt after it agreed on Sunday to broaden
its bond-buying program for the first time to halt an attack on
the Mediterranean countries. [GVD/EUR]. Italian and Spanish
yields declined sharply.

"The intervention by the European Central Bank this morning
seems to have been working," Irish Finance Minister Michael
Noonan told RTE public radio. [ID:nL6E7J817Z]

"Last week the risk was that as bond rates in Italy went
towards 7.0 percent, they'd be driven into some kind of bailout
program. They have fallen by almost one percent this morning so
they are well out of the bailout territory now."

But French sovereign credit default swaps hit a record high
of 160 basis points as the U.S. rating downgrade raised
questions about how long other AAA countries, such as France,
could hold onto their top-notch ratings. [ID:nL6E7J80ZA]

The ECB move was seen as only a temporary solution however,
due to the sheer size of Italy's bond market -- $1.6 trillion.
European stocks sank to their lowest in nearly two years, with
the German DAX closing down 5 percent as doubt about
governments' ability to deal with the euro zone debt crisis and
its impact on economic growth emerged.

A bailout of Italy would overwhelm Europe's emergency fund.
Germany has so far opposed expanding it, a view unchanged on
Monday, but French Finance Minister Francois Baroin said: "The
allotment is 440 billion (euros) and we've already said if we
need to go further we will go further."
(Additional reporting by Jonathan Stempel, Lucia Mutikani, Joe
Rauch Laura MacInnis, David Lawder and Mark Felsenthal in
Washington, Sarah Marsh and Noah Barkin in Berlin, and Gerard
Bon and Paul Taylor in Paris. Writing by Stella Dawson; editing
by Christopher Wilson)