* Most equity markets slide on fear of worldwide recession
* Dollar retreats after rising to a two-year high vs euro
* Oil prices fall, but off 17-month low (Recasts with U.S. markets, adds byline; changes dateline; previous LONDON)
By Herbert Lash
NEW YORK, Oct 27 (Reuters) - The dollar and yen gained on Monday as a slide in world stock markets and fears of a global recession prompted investors to abandon risky assets, but U.S. stocks bucked the downward trend on Verizon's good results.
Pessimism about the deteriorating global economic outlook weighed on investors around the world, driving oil prices to a 17-month low below $62 a barrel at one point and keeping alive a modest safe-haven bid in U.S. and euro-zone government debt.
The dollar climbed to its strongest level against the euro in about 2-1/2 years, while the yen hovered near 13-year peaks against the dollar. The yen also rose to its highest since May 2002 versus the single euro zone currency despite concern by G7 finance officials about its excessive volatility.
Both the dollar and yen have been the biggest beneficiaries of global capital flows as investors unwind carry trades, which use the low-yielding Japanese currency to buy everything from higher-yielding currencies to stocks and commodities.
"This is a continuation of deleveraging and unwinding of risk that has been happening the past week and this has benefited the yen and the dollar," said Omer Esiner, senior market analyst at Ruesch International in Washington.
The Dow and the S&P 500 seesawed heavily, with a tendency
to stay positive on optimism over Verizon Communications Inc's
Verizon shares jumped more than 11 percent.
Large banking stocks also got a boost after at least 10 of
them, including Capital One Financial Corp
The KBW banking index <.BKX> rose 3.68 percent.
Before 1 p.m., the Dow Jones industrial average <.DJI> was up 126.48 points, or 1.51 percent, at 8,505.43. The Standard & Poor's 500 Index <.SPX> was up 7.00 points, or 0.80 percent, at 883.77. The Nasdaq Composite Index <.IXIC> was up 6.76 points, or 0.44 percent, at 1,558.79.
European shares fell to a fresh 5-1/2 year closing low, weighed down by fears of an economic downturn.
The FTSEurofirst 300 <.FTEU3> index of top European shares closed down 1.7 percent at 816.04 points -- the lowest close since May 2003.
The chemicals sector weighed heavily on the benchmark
index, with BASF
Fear of a global recession remained high in other markets,
too, helping push the yield on two-year bunds
The price of U.S. government debt, which moves in the opposite direction of yield, were capped by a slight improvement of sentiment in short-term funding markets, helped by a Federal Reserve program to buy commercial paper.
The benchmark 10-year U.S. Treasury note
The dollar was up against a basket of major currencies, with the U.S. Dollar Index <.DXY> up 0.38 percent at 86.887.
The euro
U.S. light sweet crude oil
Gloom about the world economy has had a greater impact than a decision by the Organization of Petroleum Exporting Countries on Friday to chop output by 1.5 million barrels per day.
"What OPEC did is constructive, but right now that is beside the point," said Mike Wittner of Societe Generale.
Gold pared losses as the dollar retreated from highs against the euro,
Spot gold prices
Japan's Nikkei index <.N225> swung wildly overnight in Asia, before ending down 6.4 percent at its lowest close since 1982. The MSCI index of Asian stocks outside Japan <.MIAPJ0000PUS> fell for a fourth consecutive session, losing 3.2 percent. (Additional reporting by Ellis Mnyandu, Gertrude Chavez-Dreyfuss, John Parry in New York and Jane Merriman and Jan Harvey in London and Sarah Marsh and Tyler Sitte in Frankfurt; Editing by Neil Stempleman)