Wall Street battered by recession worries

NEW YORK (Reuters) - Wall Street stocks dove on Friday in a worldwide market rout amid signs a global economic slowdown could be deeper than feared and fueled by sales of risky assets and worries of a gloomy corporate profit outlook.

As institutions were forced to sell stocks to raise cash, markets slid around the globe, with the MSCI's all-country world index down 6.5 percent as panicked investors moved to liquidate risky positions. Japan's Nikkei index ended down nearly 10 percent and European shares lost more than 7 percent.

"The path of least resistance is still down," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

Bellwether IBM Inc was the biggest drag on the Dow, falling 4.9 percent to $80.22. Microsoft slid 3.6 percent to $21.51 after it cut its outlook late on Thursday.

Energy companies also tumbled, due to a more than $3 a barrel drop in the price of oil on worries that demand for crude will be hit by a global economic slowdown and despite OPEC saying it will cut production.

Chevron lost 7.1 percent to $62.05 while Exxon Mobil gave up 5.5 percent at $66.48.

The Dow Jones industrial average skidded 388.20 points, or 4.47 percent, to 8,303.05. The Standard & Poor's 500 Index gave up 42.40 points, or 4.67 percent, at 865.71. The Nasdaq Composite Index lost 71.07 points, or 4.43 percent, to 1,532.84.

Stock losses were exacerbated by hedge funds' and mutual funds' forced selling of stocks to raise cash to meet investors' large-scale redemptions, analysts said.

News that U.S. existing home sales rose sharply in September, logging the first year-over-year increase in nearly three years according to a report from the National Association of Realtors, had little effect on the market.

Before the market opened, stock futures had fallen so steeply they had to be frozen after triggering a limit down. Losses at the open were not as severe as investors had feared.

"The question is will we get a circuit breaker and take it down 10 percent?" said Saluzzi. "That's what people are looking at. There's a lot, a lot of nervousness out there."

The Dow would have to fall 1,100 points, or 10 percent, before 2 p.m. EDT, to trigger a one hour halt. Between 2 and 2:30 p.m., trading would be halted for 30 minutes, while there would be no halt after 2:30 p.m.

In the event of a 2,200 point dive, or 20 percent, before 1 p.m., trading would be halted for two hours. Between 1 and 2 p.m., trading would be halted for an hour, while a drop after 2:00 p.m. would cause the market to close.

Fueling global economic concerns, data showed the British economy shrank 0.5 percent in the third quarter, the first contraction in 16 years and substantially more than expected.

(Editing by James Dalgleish)