Global stocks slide on credit and inflation fears

By Herbert Lash

NEW YORK (Reuters) - Global stocks tumbled and a weaker U.S. dollar pushed oil prices higher on Tuesday as credit concerns unsettled investors and a jump in U.S. wholesale prices renewed worries about future inflation.

Crude oil, which had slipped earlier in the day below $112 a barrel, surged after a round of profit-taking weakened the dollar for a second straight session. As the dollar weakens, more of the currency is required to buy a barrel of oil.

The markets were unsettled early in the day by a government report that showed U.S. producer prices jumped at the fastest rate in 27 years in July initially lifted the dollar on the belief the Federal Reserve will be forced to raise interest rates to curb the pace of inflation.

But traders took advantage of the steep slide in stocks to book profits on the dollar's recent gains. A dollar index was on track for its worst daily loss in about five weeks, and the euro was on pace to post its best one-day gain in a month.

U.S. Treasury and euro zone debt prices also initially gained in safe-haven buying, also tracking a slide in stocks.

The threat of sharply higher inflation and lingering worries that the two leading U.S. mortgage finance companies could face steep losses weighed heavily on Wall Street. A forecast of more write-downs at Lehman Brothers also dragged down stocks.

JPMorgan Securities forecast Lehman LEH.N will likely take a further $4 billion in write-downs in the third quarter due to losses from mortgage-related investments.

Shares of financial companies were the biggest drag on the Dow and the S&P 500. Bank of America (BAC.N) fell 4.16 percent and Wells Fargo (WFC.N) dropped 3.5 percent each. The KBW index of bank stocks .BKX fell 3.38 percent.