Selling frenzy persists

By Pedro Nicolaci da Costa

NEW YORK (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.

Investors were looking to an imminent meeting of Group of Seven finance ministers in Washington, D.C., 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.

"We are not used to seeing stocks implode and Treasuries sell off," said Josh Stiles, senior bond strategist at IDEAglobal. "People are saying they don't even want to be in Treasuries now, they need the cash."

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, and bringing its losses for the week to more than 20 percent. Morgan Stanley, the No. 2 independent investment bank, plunged 37 percent on doubts that a planned $9 billion cash infection from Japan's Mitsubishi UFJ Financial Group Inc would be enough to enable it to ride out the current crisis.

The Dow Jones industrial average was down 360.01 points, or 4.20 percent, at 8,219.18. The Standard & Poor's 500 Index was down 44.48 points, or 4.89 percent, at 865.44. The Nasdaq Composite Index was down 69.84 points, or 4.25 percent, at 1,575.28.

The S&P energy index slumped 9.36 percent, as energy shares slid with a sharp drop in crude oil prices as fears rose over cooling demand for energy.

European shares closed out their worst week ever, with the pan-European FTSEuroFirst 300 index shedding 22 percent for the week after closing down 7.6 percent.

The FTSEurofirst 300 closed at 851.23 points, its lowest close since July 2, 2003.

"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 DJ Stoxx European bank index fell 10.6 percent, with Royal Bank of Scotland down more than 20 percent while Credit Suisse and Deutsche Bank lost over 16 percent each.

The MSCI world equity index fell more than 4.0 percent at one point to a five-year low, losing a fifth of its value this month alone. The index has lost 43 percent since January, on track for its worst yearly performance in 20 years.

In U.S. government bonds, only short-term Treasury bills, which are considered pretty much a cash equivalent, were able to catch a bid.

The benchmark 10-year U.S. Treasury note was trading 24/32 lower in price for a yield of 3.88 percent from 3.78 percent late on Thursday. The only buying of debt was on the very short end of the Treasury curve, where one-month T-bill yields were trading all the way down near 0.07 percent.

The U.S. dollar rose as investors moved out of riskier markets.  Continued...