U.S. calls for united front as crisis wrecks markets

NEW YORK (Reuters) - Governments and central banks around the world grasped at measures to contain the fast-spreading financial crisis on Monday, but global stocks still plummeted as investors bet the $700 billion bailout could not avert a recession.

The response in Europe was fragmented, leading top U.S. officials to call for a "forceful and coordinated" global reaction as the Dow industrials fell below 10,000 for the first time since October 2004.

Like the Dow, the S&P 500 and the Nasdaq dropped more than 4 percent, and European stocks buckled even more with FTSE 100 and the FTSEurofirst indexes down more than 6 percent each.

Emerging markets, which had gained most from the boom in commodities demand and surging global expansion in the last three years, were also sucked into the vortex. Trading was halted in markets as far afield as Brazil and Russia when indexes in there nose-dived 15 percent.

"This is a stampede," said Valerie Plagnol, chief strategist at CM-CIC Securities in Paris.

French President Nicolas Sarkozy issued a statement from the 27 member states of the European Union saying individual countries would do all they could to safeguard the financial system.

The EU pledged to protect people's savings and maintain financial stability while euro zone finance ministers gathered in Luxembourg in an attempt to attack the crisis in unison. But some analysts were pessimistic that European powers could stop the rot.

The $700 billion bailout approved by the U.S. Congress on Friday failed to provide shelter as investors appeared convinced a recession was inevitable and fled to safe havens.

The banking upheaval that began on Wall Street has effectively shut down interbank and other loan markets, pushing industrialized countries closer to recession. Conditions remained poor for interbank lending.

Even as Sweden, Austria and Denmark followed Germany's lead by offering guarantees to savers, investors from Tokyo to London continued to slash risk from portfolios and positioned for a further tightening of credit and bank lending.

South Korea said it wanted crisis talks with Japan and China while Gulf equities crumbled under concerns the fallout would strike the region.

With the U.S. presidential election less than one month away and the financial system coming to grips with a massive government intervention in America's proud free markets, the country was sorting out how it would confront the worst financial crisis since the 1930s Great Depression.

Still unresolved was who would run the U.S. Treasury Department's $700 billion program to buy up degraded debt in a bid to free up new lending by financial institutions that have been crippled by underperforming mortgages. The Wall Street Journal reported that Assistant Secretary for International Affairs Neel Kashkari would oversee it.

The Federal Reserve announced it was paying interest on excesses reserves from depository institutions to address conditions in credit markets.

Lost in the avalanche of bad news for struggling families was the continued drop in oil prices, which fell below $90. That was a dose of relief amid deteriorating macroeconomic signs including another 159,000 jobs lost in September, the ninth straight monthly reduction and the deepest in 5-1/2 years.

EUROPEAN BANKS TRANSFORMED

In Europe's sudden transformation of its banking sector, France's BNP Paribas agreed to scoop up assets in Belgium and Luxembourg of banking and insurance group Fortis for 14.5 billion euros ($20.1 billion) to become the euro zone's biggest deposit bank.

Germany abandoned plans to handle its domestic banking problems on a case-by-case basis and is now considering a nationwide umbrella to shield its entire financial industry.

On a frantic weekend, Germany clinched a revised rescue deal for lender Hypo Real Estate in which commercial banks and insurers will provide extra billions of euros of liquidity.

Sweden became the latest European Union country to act, with the government saying it would expand bank deposit guarantees and the central bank raising the amount of loans offered to banks.

It followed Germany's pledge on Sunday to guarantee private deposit accounts, a move that spurred similar action by Austria and Denmark. Ireland issued the first such guarantee last week, prompting criticism of a fragmented European Union response.

"We have a seriously weak and fear-driven market on our hands," said Tom Hougaard, chief market strategist at City Index in London.

Trading in shares of Italy's UniCredit was suspended several times as volatile trading greeted the bank's abrupt U-turn decision to boost capital by 6.6 billion euros amid what it called unprecedented market turmoil.

For its part, the Federal Reserve was pushing Citigroup Inc and rival Wells Fargo & Co to compromise over their competing bids for hobbled U.S. bank Wachovia Corp that could result in them carving up its assets.

(Reporting by Reuters bureaux worldwide; Editing by Steve Orlofsky)

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