US STOCKS-Wall Street sinks on recession, credit fears

* 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 to close)

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, 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 temporary trading halts 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.

In the latest development in the fast-changing U.S. financial landscape, Citigroup (C.N: Quote, Profile, Research, Stock Buzz) said it is suing Wachovia (WB.N: Quote, Profile, Research, Stock Buzz) and Wells Fargo (WFC.N: Quote, Profile, Research, Stock Buzz) and is seeking more than $60 billion in damages over Wells Fargo's competing bid for Wachovia.

Wells Fargo slipped 2.7 percent to $33.64, Wachovia shares dropped 6.9 percent to $5.78 and Citigroup lost 5.1 percent to $17.41.

Among other financial shares, Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz) fell 6.6 percent to $32.22 after the bank agreed to settle claims brought by U.S. attorneys-general regarding risky loans originated by mortgage lender Countrywide Financial in a deal that could be worth more than $8.6 billion.  Continued...