World stocks tumble on credit worries

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Markets end week on a positive note

NEW YORK: World stocks tumbled and bonds rallied on Thursday as a resurgence in credit worries roiled markets and sent investors into safe-haven investments one day after the Federal Reserve cut interest rates to calm subprime-related concerns.

Weaker financial stocks led a steep drop on Wall Street that encouraged investors to back out of riskier assets, pushing up the yen against the dollar and lifting US Treasury debt prices.

European shares suffered their largest one-day percentage drop in eight weeks, hit by declines in banks, with the pan-European FTSEurofirst 300 index down 1.6 percent.

Credit Suisse reported a 2.2 billion Swiss franc ($1.9 billion) writedown on bad loans and mortgage investments on Thursday and said its investment banking division barely broke even.

Citigroup shares fell as much as 9 percent after a CIBC World Markets analyst downgraded the largest U.S. bank to "sector underperformer." The analyst said Citigroup would be forced to sell assets, raise capital or cut its dividend to improve its capital ratios.

CIBC also downgraded Bank of America, saying it sees a diminished revenue outlook for the bank.

GMAC, the finance company once controlled by General Motors Corp, said it lost $1.6 billion in the third quarter.

"It is all concerns about the implosions in the credit markets and that we are only seeing the beginning of it -- that it is going to hurt the economy and most likely force the Fed's hand again to ease," said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson & Co in Seattle.

"Also, the economic data today was really mixed at best for the economy," Hurley said.

Adding to the gloom, Exxon Mobil reported profits that fell short of analysts' expectations. Exxon shares slid 2.5 percent on the NYSE.

The Dow Jones industrial average was down 225.41 points, or 1.62 percent, at 13,704.60. The Standard & Poor's 500 Index was down 25.35 points, or 1.64 percent, at 1,524.03.

The dollar extended losses against the yen after a key US manufacturing index was weaker than expected in October.

The Institute for Supply Management's manufacturing index came in at 50.9 for October, the lowest since March. Economists were expecting an index of 51.5.

But the greenback climbed versus European currencies and commodity units such as the Australian, New Zealand and Canadian dollars.

Falling stocks also prompted investors to sell the dollar and buy the yen.