Crisis reverberates from Hungary to Wall St

NEW YORK/WASHINGTON (Reuters) - Stocks, currencies, oil and commodities tumbled on Wednesday and governments from Budapest to Buenos Aires resorted to emergency action to rescue their economies from the worst financial crisis in 80 years.

The White House set a date of November 15 for the first of a series of international crisis summits that will bring together the G20, which includes major industrial economies plus big emerging-market countries like China, India and Brazil.

Three weeks away and coming after the November 4 U.S. presidential election, the summit is unlikely to do more than kick off a process toward international reforms. Europeans have been pressing for a major financial system revamp.

Governments scrambled to fix the immediate problems threatening to overwhelm their economies.

Hungary hiked interest rates to defend the forint, Ukraine, Pakistan, Iceland and Belarus sought IMF help, currencies tumbled against the yen and dollar, which hit a two-year high, and U.S. companies announced big job cuts and weaker earnings.

Major U.S. stock indexes dropped for a second straight day, oil fell 7 percent to below $68, a 16-month low, and commodities slumped on the soaring dollar and fears of a global recession.

Battered U.S. bank Wachovia Corp, which will be taken over by Wells Fargo & Co, posted a $23.9 billion third-quarter loss, a record for a banking company in the crisis.

AT&T Inc and Boeing were among firms reporting weaker-than-expected earnings, and drugmaker Merck & Co said it would cut 7,200 jobs.

"We started the week off in good spirits about the credit market loosening up and then the onslaught of earnings hit us," said Arthur Hogan, chief market analyst at Jefferies & Co.

A rare welcome sign was mostly lower interbank borrowing costs, with further steep falls in dollar rates and spreads indicating the recent flood of liquidity pumped into the banking system was easing money market strains.

INTENSE PRESSURE

But emerging market stocks, sovereign debt and currencies were all under intense pressure.

The dollar and the yen gained as investors moved out of riskier assets in other currencies.

"History shows that, when bubbles burst, no amount of glue, from slumping Libor rates or anywhere else, can stick them back together again. The law of 'what goes up must come down' has to work its way through and, right now, it is working its way through the currency market with a vengeance," Standard Bank G10 currency strategist Steve Barrow told clients.

The banking crisis that started in developed markets was pounding emerging markets as investors retrenched.

Hungary ratcheted up interest rates by three full points to 11.5 percent to defend its forint currency.

Argentine bonds fell 7 percent and stocks lost 16 percent after President Cristina Fernandez sent a bill to Congress to nationalize the private pension system, even though labor leaders and many lawmakers applauded the nationalization as a way to guarantee pensions during the global economic turmoil.

Belarus' central bank said it had requested credit from the International Monetary Fund, and Ukrainian Prime Minister Yulia Tymoshenko said she expected Kiev to receive substantial IMF financial aid next week.

The IMF is also ready to help Pakistan, which needs funds to avoid a balance of payments crisis, and Iceland, driven close to bankruptcy as frozen credit markets caused its banks to fail.

"It's not that the fundamentals for emerging markets have changed. Capital is now moving back from the emerging world to the developed world," said Neil Dougall, chief emerging markets economist at Dresdner Kleinwort.

RECESSION LOOMS

The overarching fear was recession, a topic that will weigh on the minds of world leaders at the G20 summit to be held in the Washington area. The White House said it would seek input for the summit from whoever wins the presidential election.

Minutes from the Bank of England's last meeting, at which it joined a round of rate cuts, said Britain's economy had deteriorated substantially. Prime Minister Gordon Brown, who for a decade has promised an end to "boom and bust," admitted the global financial crisis was bound to hurt economies across the world -- including Britain's.

"That is why we are giving our undivided attention to helping families and businesses," he said.

The Dow and S&P 500 fell more than 4 percent. European shares ended down 5 percent and Japan's Nikkei average ended down 6.8 percent.

In emerging markets, MSCI's sector index was at its lowest since June 2005, and sovereign debt spreads widened beyond 700 basis points over Treasury yields for the first time since early 2003.

The latest market turmoil came despite some optimistic words from officials about the financial crisis, which has prompted trillions of dollars in rescue and liquidity packages from governments around the world.

"The interbank (lending) has started working normally. The rates are high but coming down. Banks have started crediting sectors again. But we still need two or three weeks for the situation to start improving," the Financial Times quoted First Deputy Prime Minister Igor Shuvalov as saying.

(Editing by Steve Orlofsky and Brian Moss)