GLOBAL MARKETS-Selling frenzy persists as confidence crumbles

 

* Panic selling hits U.S., European, Asia bourses

* MSCI world equity index sees five-year low

* Dash for cash even hits government bonds

* Dollar rises on scramble for hard currency

(Recasts lead, updates prices)

By Pedro Nicolaci da Costa

NEW YORK, Oct 10 (Reuters) - Global stocks dove head first to five-year lows on Friday at the end of a brutal week as even the traditional safe-havens of gold and government bonds suffered as fear-stricken investors sought refuge in cash.

U.S. stock markets recouped a good portion of their losses late in the day, as investors looked to an imminent meeting of Group of Seven finance ministers for a policy response to the deepening global credit crisis.

The dollar rose to a 15-month high against a basket of major currencies as investors scrambled for cash preferably in the world's reserve currency. The euro capped its worst two-week period against the collar since the introduction of the single currency in 1999.

Oil fell below $80 for the first time in a year and gold slid.

"It's total panic. People are so scared that they are looking to liquidate everything that has cash value and to stay away from everything," said Bruce Dunn, vice president of trading at New Jersey-based Auramet Trading.

In U.S. equities, the Dow Jones slid as much as 8 percent to break below 8,000 for the first time since April 1, 2003, before paring losses to close down 1.5 percent. A late pop in technology shares helped the Nasdaq eke out its first gain of the month on Friday.

The broad S&P index had its worst week ever, while the Dow was down 18 percent for the week.

"The new lows we've seen in stock markets this week are the result of panic selling," said Joost van Leenders, asset allocation specialist at Fortis Investments.

The Dow Jones industrial average .DJI finished the day down 128.00 points, or 1.49 percent, at 8,451.19. The Standard & Poor's 500 Index .SPX was down 10.70 points, or 1.18 percent, at 899.22. The Nasdaq Composite Index .IXIC managed to squeak 4.39 points higher to 1,649.51.

Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) ,the No. 2 independent investment bank, plunged 22.3 percent on doubts that a planned $9 billion cash injection from Japan's Mitsubishi UFJ Financial Group Inc would be enough to enable it to ride out the current crisis.  Continued...