Central banks cut rates but markets stay fearful

By Daniel Trotta and Kevin Krolicki

NEW YORK/WASHINGTON (Reuters) - Central banks around the world cut interest rates in unison on Wednesday but the unprecedented move failed to help battered stocks, thaw credit markets or temper forecasts for a sharp global economic downturn.

U.S. stocks closed down for a sixth straight session after heavy and volatile trade that saw gains fade in the final hour amid uncertainty about whether the lower interest rates would avert recession.

The S&P 500 index closed down 1 percent and has shed 15 percent this month. Wall Street's benchmark of fear, the Chicago Board Options Exchange Volatility Index, hit a record high as investors scrambled for cover.

Shares in Europe and Latin America posted deeper losses, extending a rout that has cost investors about $12 trillion (6.96 trillion pounds) over the past year, an amount equal to the entire value of the U.S. mortgage market.

"We're sitting between the abyss, which is the unthinkable, which is the breakdown of the financial system, or a deep and sustained recession," said Kirby Daley, a strategist at Newedge Group.

Prices for oil and other commodities fell as investors rolled back to cash and gold -- safe havens in fear-wracked markets.

The coordinated rate cuts were the latest salvo from financial policymakers in response to a crisis that has unsettled global investors, toppled banks in the United States and Europe and reshaped the U.S. presidential election.

Shoring up the capital of European banks remained a priority for governments and investors.