Feb. 20 (Bloomberg) -- Stocks tumbled around the world, sending the Dow Jones Industrial Average to an 11-year low, on concern the deepening recession will force banks to seek more government aid. Europe’s Dow Jones Stoxx 600 Index slid to a six- year low, and Japan’s Topix Index declined to the worst level since 1984.

Treasuries rallied and gold climbed above $1,000 an ounce.

Citigroup Inc. and Bank of America Corp. lost more than 20 percent on concern the U.S. may take over both banks, which combined received $90 billion in government aid in four months. Anglo American Plc sank 17 percent as the mining company suspended its dividend and share buybacks. Bridgestone Corp., the world’s largest tiremaker, fell 7.4 percent after saying profit will slide 71 percent this year.

The MSCI World Index sank for a ninth straight day, retreating 2.6 percent to 769.93 at 1:09 p.m. in New York. The index of 23 developed countries has lost 8 percent this week. The Dow average slumped 201 points to 7,264.6, the lowest since 1997.

“The most critical question is what will happen to the banks,” said Kevin Shacknofsky, who helps manages $2 billion at Alpine Mutual Funds in Purchase, New York. “If you look at the current sentiments of the government, they are going around cutting compensation and criticizing the industry, and your sense is that banks will be nationalized and shareholders wiped out.”

The S&P 500 slid 2.8 percent, extending its weekly slump to 8.4 percent. The benchmark index for American equities is within 1 percent of its 11-year low of 752.44 reached Nov. 20.

Treasuries headed for a second straight weekly gains, pushing yield on the 10-year note down to 2.73 percent, according to BGCantor Market Data. Gold, which has rallied every year since 2000, rose above $1,000 an ounce for the first time since March 2008 in New York.

The yen climbed against the dollar and euro as investors sought assets seen as havens.

‘Serious Challenge’

The global credit crisis poses a “serious challenge” to the financial system and economic policy makers around the globe, said European Central Bank President Jean-Claude Trichet at a Paris conference. The euro dropped against the dollar.

The MSCI World has tumbled 54 percent since its October 2007 record as credit-related losses at global financial firms climbed to $1.1 trillion and Europe, the U.S. and Japan fell into the first simultaneous recessions since World War II.

The gauge of developed countries extended its retreat this month as companies from Electricite de France SA to Diageo Plc posted disappointing results and U.S. Treasury Secretary Timothy Geithner failed to convince investors that his plan to rescue U.S. banks will work.

Europe’s Stoxx 600 closed down 3.5 percent to 176.93, a six- year low, as UBS AG tumbled. The MSCI Asia Pacific Index lost 2.2 percent, led by Qantas Airways Ltd. after Moody’s Investors Service cut its debt rating.

Capital Preservation

“People are shifting into capital preservation mode from investing mode,” said Art Hogan, the New York-based chief market analyst at Jefferies & Co. “We’re seeing increased concern about the depth of the global recession and the capitalization of major financial institutions.”

Citigroup plunged 24 percent to $1.92 for the steepest decline in the S&P 500. Bank of America retreated 21 percent to $3.11.

Citigroup is not engaged in any unusual discussions with the government, a person familiar with the matter said today. Bank of America tumbled 14 percent to $3.37. Chief Executive Officer Kenneth Lewis sought to assure his management team yesterday that the bank wouldn’t be seized by the government, the Wall Street Journal reported today, citing a person familiar with the situation.

Senate Banking Committee Chairman Christopher Dodd said it may be necessary briefly to nationalize some banks.

“I don’t welcome that at all, but I could see how it’s possible,” Dodd said in an interview on Bloomberg Television’s “Political Capital with Al Hunt” to be broadcast later today. “I’m concerned that we may end up having to do that, at least for a short time.”

S&P 500 financial stocks, which have slumped 21 percent this week, sank 8 percent as a group today. Wells Fargo & Co. fell the most in a month, losing 23 percent to $9.25.

Meredith Whitney, the financial industry analyst who left Oppenheimer & Co. to start her own firm, said on CNBC Television she doesn’t expect the banks she covers to continue paying dividends at their current levels.

Metal Prices

Anglo American, controller of the world’s biggest platinum producer, dropped 17 percent to 1,027 pence. The company will cut 19,000 jobs to retain cash after metal prices collapsed. Full- year net income fell to $5.2 billion from $7.3 billion a year earlier, Anglo said.

Bridgestone sank 7.4 percent to 1,251 yen after saying net income will probably fall 71 percent to 3 billion yen ($32 million) this year as demand for new cars wanes.

“One gets the sense that the public is to the point of throwing up its hands at its stock positions,” said Dennis Gartman, an economist and the editor of the Gartman Letter in Suffolk, Virginia. The gold rally is “getting to be a bit of a frenzy.”

Luxury homeowners are falling behind on mortgage payments at the fastest pace in more than 15 years, a sign the U.S. financial crisis that began with the poorest Americans has reached the wealthiest. About 2.57 percent of prime borrowers who took out jumbo loans last year were at least 60 days delinquent, according to mortgage data service LPS Applied Analytics.

The cost of living in the U.S. rose in January for the first time in six months, according to the Labor Department, as gasoline prices stabilized and loss-ridden retailers pushed through increases.

Among S&P 500 industries, only telephone stocks advanced. Goldman Sachs Group Inc. advised buying shares of AT&T Inc. and Verizon Communications Inc., spurring a 0.5 percent gain in the S&P 500 Telecommunication Services Index.

Lowe’s Earnings

Lowe’s Cos., the second-biggest home-improvement retailer, declined 6.1 percent to $15.94. The company forecast first- quarter earnings per share of 23 cents to 27 cents, trailing analysts’ estimates of 31 cents.

Profits for S&P 500 companies are forecast to fall 33 percent this quarter and 26 percent in the next, according to analysts’ estimates from a Bloomberg survey.

Saab Automobile filed for protection from creditors after parent General Motors Corp. said it will cut ties with the Swedish carmaker following two decades of losses. GM sank 15 percent to $1.70.

Porsche SE slid 7.9 percent to 33.59 euros. The maker of the 911 sports car was rated “underweight” in resumed coverage at Morgan Stanley with a price estimate of 10 euros.

UBS tumbled 13 percent to 9.26 francs after Switzerland’s largest bank was sued by the U.S. government to force disclosure of as many as 52,000 American customers who allegedly hid their Swiss accounts from tax authorities.

Qantas, Australia’s largest carrier, slumped 4.3 percent to A$1.675 after Moody’s lowered its long-term debt rating to Baa2, the second-lowest investment grade, from Baa1 because of plunging air-travel demand.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

Last Updated: February 20, 2009 13:19 EST