GLOBAL MARKETS-Global stocks fall on bankruptcy fears, oil dips

* Global stocks slide on potential automakers' bankruptcy

* U.S. dollar, yen rise on renewed risk aversion jitters

* Bond prices ruse on an increase in flight to safety

* Oil falls on stronger dollar, sliding equity markets (Adds close of U.S. markets)

By Herbert Lash

NEW YORK, March 30 (Reuters) - Global stocks skidded on Monday as President Barack Obama's harsh medicine for ailing U.S. automakers threatened bankruptcy for General Motors and Chrysler, while a flight to safety lifted the dollar and yen.

Oil prices dropped more than 7.0 percent to below $49 a barrel, weighed down by a stronger U.S. dollar and sliding equity markets.

Government debt prices rose as the heavy stock losses and potential bankruptcies whetted the appetite for safe-havens.

The Dow and S&P 500, which had climbed about 20 percent after sliding to 12-year lows in early March, fell more than 4.0 percent after Obama ordered GM and Chrysler to accelerate their turnaround efforts and brace for possible bankruptcy. For details, see [ID:nSP207882]

The two indexes later pared some losses, closing down more than 3.0 percent.

A bankruptcy court restructuring could threaten equity holders, force deeper losses on creditors and signal a protracted downturn for the already weak U.S. economy.

Bank rescues in Europe weighed on financial shares on both sides of the Atlantic, while renewed concerns about banks and automakers lifted U.S. and European government debt prices.

"We still have a lot of problems in a lot of different areas and the auto industry is one of them," said Bill Strazullo, partner and chief investment strategist at Bell Curve Trading in Boston.

"We've had a straight move higher," Strazullo said of equity markets, "and it just doesn't coincide with all the issues that are still out there."

Among bank shares, Citigroup tumbled 11.8 percent to $2.31 and Bank of America dropped 17.9 percent to $6.03. The KBW Bank index <.BKX> shed 10.3 percent.

The Dow Jones industrial average <.DJI> fell 254.16 points, or 3.27 percent, at 7,522.02. The Standard & Poor's 500 Index <.SPX> shed 28.41 points, or 3.48 percent, at 787.53. The Nasdaq Composite Index <.IXIC> lose 43.40 points, or 2.81 percent, at 1,501.80.

European markets fell after Spain was forced into its first bank rescue since the financial crisis began and Germany and Britain also acted to shore up lenders as the sector awaited the brunt of the impact of rising bad loans. [ID:nLU302379]

The European efforts "really just hammer home the fact that this crisis is worldwide and we know Europe's in worse shape than we are," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati.

"The fear that they're nationalizing just leads to more selling of our banks here, it's all really intertwined."

Banks and commodity stocks led European markets lower, with the FTSEurofirst 300 <.FTEU3> index of top regional companies closing down 3.85 percent at 709.10 points.

The euro continued to retreat from last week's two-month high above $1.37, falling below $1.32 after Spain was forced to take over a regional savings bank, while Standard & Poor's cut the credit ratings of Hungary and Ireland.

The euro was down 0.80 percent at $1.3192.

The dollar rose against a basket of major currencies, with the U.S. Dollar Index <.DXY> up 0.62 percent at 85.674. Against the yen, the dollar fell 0.64 percent at 97.22

An aversion to risk among investors over the past six months has increased the appeal of the dollar and yen, which tend to rise in times of uncertainty as investors repatriate funds from higher-yielding currencies and riskier assets.

"(There) is a reemergence of risk aversion and that has obviously been spurred on by what's going on with both GM and Chrysler," said Matt Esteve, a foreign exchange trader at Tempus Consulting in Washington.

"With markets around the world tumbling ... investors are flocking back to the dollar and also to the Japanese yen."

Weakness in the global economy continued to be one of the underlying factors pressuring oil prices.

Industrial output from Japan, the world's No. 3 energy consumer, fell by a greater-than-expected 9.4 percent in February, as weak demand weighed on the country's economy. [ID:nTKU103331]

U.S. oil for May delivery settled at $48.41 a barrel, down $3.97.

London Brent crude settled at $47.99 a barrel, down $3.99.

U.S. government debt prices rose. The benchmark 10-year U.S. Treasury note rose 14/32 in price to yield 2.71 percent. The 2-year U.S. Treasury note rose 4/32 in price to yield 0.86 percent.

Spot gold prices fell $4.40, or 0.48 percent, to $916.65. (Reporting by Edward Krudy, Wanfeng Zhou, Rebekah Kebede in New York and Kirsten Donovan, Paul Lauener, Dominic Lau and Joanne Frearson in London; writing by Herbert Lash)