US STOCKS-Credit, recession fears slam Wall Street

* Global markets sink on credit, recession fear * European bank rescues fuel worries about spiraling crisis * Oil falls on worry recession will crimp demand * Dow down 3.6 pct, S&P down 3.9 pct, Nasdaq down 4.3 pct (Updates with Bank of America shares sliding more after hours)

By Kristina Cooke

NEW YORK, Oct 6 (Reuters) - U.S. stocks slid for a fourth straight day on Monday, leaving the Dow below 10,000 for the first time in four years, on fears the global economy was hurtling into recession despite government efforts to contain the fast-spreading financial crisis.

The steep declines came in the first full session since the U.S. Congress approved a $700 billion bailout of the financial industry, as lending came to a virtual halt and investors shifted their focus to the crumbling outlook for the economy and profits.

But the market cut almost half its losses in the final hour of the session, as traders speculated the sell-off may trigger a coordinated global response to thaw credit markets. The S&P financial sector sub-index.GSPF, which had earlier been down more than 8 percent, closed down 4.2 percent.

The energy sector skidded as the price of oil dropped to an 8-month low below $88 a barrel on expectations that a recession will further hamper global fuel demand.

Wall Street's drop was part of a breakneck global sell-off, which led to trading being halted in Russia, Brazil and Peru. The emergency rescue of two big European banks and a move by several European governments to guarantee bank deposits intensified fears that the credit crisis can not be contained.

"We're clearly in the panic zone now. We've tipped over from bear market to panic," said John Schloegel, vice president of investment strategies for Capital Cities Asset Management in Austin, Texas.

"We're past the bailout now and focused back on fundamentals again and the fundamentals don't look good. People are starting to come to grips with third-, fourth- quarter earnings. If the supertanker of the U.S. economy is at a complete standstill, which it might be, that has not been adequately discounted yet," he said.

The Dow Jones industrial average .DJI fell 369.88 points, or 3.58 percent, to 9,955.50. It was the first time the Dow closed below 10,000 since October 2004.

The Standard & Poor's 500 Index .SPX skidded 42.34 points, or 3.85 percent, to 1,056.89, while the Nasdaq Composite Index .IXIC dropped 84.43 points, or 4.34 percent, to 1,862.96.

For the year to date, the Dow is down about 25 percent, the S&P 500 is down 28 percent and the Nasdaq is down 29.8 percent.

BANK OF AMERICA EXTENDS SLIDE AFTER BELL

After the closing bell, there was more tough news for the banking sector. Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz) cut its dividend, unveiled plans to sell $10 billion of new stock and said third-quarter profit was cut in half from a year ago.

Bank of America warned that credit quality continued to weaken during the quarter and said the economy has moved to a "recessionary environment." Shares of Bank of America, which had fallen 6.6 percent to $32.22 during the regular session, fell another 7 percent in after-hours trade.

In the latest development in the reshaping of the U.S. financial landscape, a person familiar with the situation said Wells Fargo & Co (WFC.N: Quote, Profile, Research, Stock Buzz) and Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) were in talks to end their high-stakes battle over troubled Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz). The increasingly bitter dispute, which flared through the weekend, has drawn in U.S. government officials in an attempt to broker a compromise.  Continued...