Waterfall of losses in markets

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The dollar fell to record lows against the euro on Tuesday after the Federal Reserve slashed its outlook for U.S. growth, but Wall Street equities fought off credit market jitters as surging crude oil prices lifted shares of energy company.

Stocks bounced back into the black in a late-day recovery, after earlier falling to three-month lows, with energy companies such as Exxon Mobil leading the charge, as crude oil prices jumped more than 4 percent.

The rebound in investor appetite for riskier assets quashed a safe-haven bid for Treasuries that earlier had pushed bond yields -- which move inversely to their prices -- toward two-year lows.

Crude oil prices in New York matched an all-time high of $98.62 per barrel, bolstered by the record weakness in the dollar and concerns over tight supply heading into winter. Gold prices rose above $800.

The euro pushed above $1.48 and was on track for its biggest daily gain against the dollar in a year.

"Expectations of interest-rate cuts by the Federal Reserve are sending the dollar lower and this is once again drawing buyers in non-U.S. dollar-denominated currencies into the crude oil market," said Addison Armstrong, analyst at TFS Energy in Stamford, Connecticut.

Minutes of the Federal Open Market Committee's October meeting showed policy-makers downgraded their forecast for 2008 economic growth to between 1.8 percent and 2.5 percent, from a prior range between 2.5 percent and 2.75 percent, and forecast the core PCE price index, the Fed's favored inflation gauge, at between 1.7 and 1.9 percent.

"Whether it happens tonight or at the next meeting, the Fed looks set to cut rates," said Michael Malpede, a senior currency strategist, at Man Global Research in Chicago. "I think that means the euro is probably headed to $1.50 by year end."

U.S. financial shares fell after mortgage finance company Freddie Mac posted its biggest loss ever and signaled more trouble ahead for housing and credit markets. Freddie Mac shares plunged 28.7 percent.

Shares of Countrywide Financial Corp, the biggest U.S. mortgage lender, finished down 2.7 percent after the company said it has ample liquidity and capital. The shares had fallen as much as 22 percent earlier on rumors of a possible bankruptcy filing.

"There's obviously still a lot of concern about the extent of damage to financial institutions and we're definitely not through it yet," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co.

At one point in the session, the Nasdaq was down more than 10 percent from its 52-week closing high set on Oct. 31. Wall Street defines a drop of that magnitude as a correction.

The Dow Jones industrial average was up 51.70 points, or 0.40 percent, to end unofficially at 13,010.14. The Standard & Poor's 500 Index was up 6.43 points, or 0.45 percent, to finish unofficially at 1,439.70. The Nasdaq Composite Index was up 3.43 points, or 0.13 percent, to close unofficially at 2,596.81.

The volatility in stocks played out in the Treasuries market.

By late afternoon, the benchmark 10-year Treasury note slipped 4/32 in price for a yield of 4.09 percent.

Intermittently, market speculation swirled that the Federal Reserve might unveil an emergency rate cut before its next scheduled rate-setting meeting on Dec. 11.

Some traders cautioned the Fed would not move to cut rates again before seeing retail sales results from Black Friday, the day after Thanksgiving and traditionally the biggest shopping day of the year.

U.S. short-term interest rate futures showed a 92 percent chance that the Fed will cut its benchmark interest rate by 25 basis points on Dec. 11 to 4.25 percent, up from 70 percent chance early on Tuesday.

Earlier, the pan-European FTSEurofirst 300 index closed up 1.2 percent at an unofficial 1,479.7.

In commodities markets, U.S. crude rose $3.82 to $98.46, while U.S. gold futures settled up $13.40 at $791.40, after earlier rising as high as $799.50.

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