Global stocks dive on credit fears

By Cal Mankowski

NEW YORK (Reuters) - Fears that tighter credit in the U.S. subprime housing sector will choke off growth in other sectors sent stock markets around the world sharply lower on Thursday while government bonds rallied in a flight to safety.

The yen soared against all of the major currencies as investors unwound risky trades financed with borrowed yen.

U.S. stocks opened sharply lower after weak housing data and then added to the losses following news that manufacturing activity in the U.S. mid-Atlantic region had no growth in August.

The Dow Jones industrial average, the S&P 500 and the Nasdaq composite index all fell to levels 10 percent below their mid-July highs, a decline that chart analysts consider a correction from excessive levels.

"It's fear and panic," said David Bianco, chief U.S. equity strategist at UBS, in New York. "People are beginning to lean toward outlooks now of all the dominoes falling, that the U.S. economy slides into recession because of this credit crunch, and it has an adverse impact on the global economy and even the globally exposed sectors."

Some of the losses were pared in late trading but going into the final hour of regular session trading the major indexes were still sharply lower.

At 2:59 p.m. (7:59 p.m. British time) the Dow Jones industrial average was down 164.21 points, or 1.28 percent, at 12,697.26. The Standard & Poor's 500 Index was down 13.11 points, or 0.93 percent, at 1,393.59 and the Nasdaq Composite Index was down 38.69 points, or 1.57 percent, at 2,420.14.

The Toronto Stock Exchange's main stock index was down nearly 3 percent after paring some losses.