Global stocks fall on persistent fears, bonds up

U.S. stocks plunged at the open and government debt rallied in a renewed bid for safety on Wednesday as investors worried the U.S. government's rescue of insurer American International Group wouldn't be enough to stem further financial market turmoil.
The benchmark S&P 500 index shed more than 2% when U.S. equities opened though it pared some losses after. European shares, which initially got a boost from the news of government help for AIG, tracked the weak start in U.S. markets as a spike in inter-bank lending rates rattled investors who fear credit constraints.
U.S. Treasury bonds rallied sharply in a scramble for safe-haven investments, with the 30-year bond gaining more than one full point in price and its yield falling to about 4%, down from 4.08% late on Tuesday.
The yen fell against the euro and moved well away from recent four-month highs versus the dollar as the extension of a lifeline to AIG alleviated some risk aversion.
Investors were still on tenterhooks as volatile equity markets reflected a strong sense of unease about the health of financial markets.
"The government's lifeline to AIG has temporarily boosted risk appetite and we are seeing some unwinding of some of the safe-haven positions that we have seen over the past week or so," said Omer Esiner, a senior currency analyst at Ruesch International in Washington.
"The dollar had benefited from safe-haven capital flows into U.S. Treasuries and we are seeing a little bit of an unwinding of that. The tentative increase in risk appetite is hurting the dollar and the yen."
The U.S. dollar and yen fell on Wednesday as the government's rescue of AIG revived risk appetite, encouraging traders to unwind some safe-haven trades.
Oil and gold rebounded, in tandem with other commodities, after the $85 bln U.S. government rescue of AIG gave energy investors a bit of respite.