Financial worries slam global stocks

By Herbert Lash

NEW YORK (Reuters) - Global stocks fell sharply on Tuesday, knocked lower by growing fears over the outlook for banks, but a big drop in oil prices eased the slide in equity markets and slowed the flight to the safe-havens of gold and government debt.

After a day of volatile trade, the Dow closed below the 11,000 mark for the first time since July 2006.

U.S. stocks ended off their lows for the day, helped by crude oil's decline and a brief turnaround in financial shares after the head of the Federal Reserve said banks are well-capitalized and after securities regulators announced an emergency rule on short selling.

As much as $9.26 was shaved from the price of a barrel of crude, the largest drop in dollar terms in 17 years, as growing concerns about the U.S. economy stirred demand woes.

Crude oil slumped to a session low of $135.92 in the biggest one-day drop since January 1991 after U.S. bombing of Iraq began in the Gulf War.

Shares in Europe and Asia slid more than 2.0 percent as bank stock got hammered, and investors around the world flocked to government debt amid persistent worries about the global outlook for the economy and the financial sector.

Fears about the world banking system put in question a U.S. government plan to rescue mortgage finance companies Fannie Mae and Freddie Mac, sending the U.S. dollar to a fresh record low against the euro.

Investors also bid up the price of safe-haven government debt and gold.