Global stocks slide on economic news

By Herbert Lash

NEW YORK (Reuters) - U.S. stocks fell sharply on Thursday, pulled down by a plunge in banking shares, as disappointing economic news snapped optimism that had been growing from last week and renewed a safe-haven bid for bonds.

A drop in sales of existing U.S. homes to a 10-year low was the straw that broke investor hopes that an end to the yearlong credit crisis was taking shape. Government efforts to rescue the two biggest U.S. mortgage finance companies this week spurred that view.

Oil prices recovered on technical trading after falling to a seven-week low amid recent signs of slackening demand.

The mood turned gloomy early after a raft of economic reports supplied ample evidence of deteriorating economies. U.S. and euro zone government debt rallied on the news.

The reports pointed to more U.S. labour market weakness and no let up in the housing slump, while Ford and Dow Chemical were both pressured by quarterly results that disappointed.

The broad market Standard & Poor's 500 Index and the Dow both fell more than 2 percent. Bank of America, Citigroup and JPMorgan Chase were the biggest drag on the S&P 500, and they were among the top drags on the Dow.

In Europe, German business sentiment suffered its biggest drop since the September 11, 2001 attacks on New York and Washington, British retail sales took a record fall and surveys of German, French and Italian businesses all came in below market expectations.

Bleak data also arrived as Daimler (DAIGn.DE) and Renault (RENA.PA) cut their annual forecasts, hammering automakers and helping push European shares lower. The euro hit a two-week low against the dollar as the increasingly gloomy outlook cooled any expectations the European Central Bank would raise interest rates.