U.S. stocks fall in late sell-off, dollar gains

By Herbert Lash

NEW YORK (Reuters) - Risk aversion swept financial markets on Monday as fears of a global recession bolstered the dollar and yen while driving equities around the world lower, sending both U.S. and European stocks to five-and-a-half-year lows.

Pessimism about the deteriorating global economic outlook pushed the price of crude oil to a 17-month low below $62 a barrel at one point and sent the yen to an almost 13-year peak against the dollar on risk aversion.

Major U.S. stock indexes closed down more than 2 percent after a see-saw session in which investors cheered the solid wireless sales at Verizon Communications Inc (VZ.N), but then sold off heavily in another wild session where stock prices swung violently at the end.

Trading was volatile and volume was light in New York, with stocks falling sharply in the last half hour of trading. With just four days left in October, the S&P 500 is on track for its worst month ever in the post-World War Two period.

Hedge funds and mutual funds have been dumping stocks to raise cash to meet redemptions from their clients, traders noted, exacerbating the late-day selling.

Earlier in Europe, shares fell to a five-and-a-half-year closing low following a plunge in Japan that pushed stocks to 26-year closing lows. Most other Asian markets also fell heavily in chaotic trade as investors feared a flurry of central bank moves would not be enough to stave off a global recession.

"It is so negative out there, you felt like a skater without any skates: it couldn't stay up," said Angel Mata, managing director of listed equity trading, Stifel Nicolaus Capital in Baltimore.

"People right now are expecting the worst; a total collapse of the hedge fund industry with half of them (hedge funds) not existing any more. Mom and pops with 401ks are saying, I have had enough and don't want to be in there any more," Mata said.