GLOBAL MARKETS-Equities slide amid investor doubts, gold jumps

* Stocks slip amid doubts about European crisis response

* Fed commercial paper program cuts govt debt safety bid

* Dollar slips against currency basket, yen also falls

* Oil rebounds, but OPEC members worried by oil price fall (Adds close of European markets)

By Herbert Lash

NEW YORK, Oct 7 (Reuters) - Investors took a dim view of paltry European efforts to shore up unsettled markets, sending U.S. and European equity stocks lower on Tuesday, while another emergency Federal Reserve move to shore up credit markets curbed the safe-haven appeal of government debt.

The U.S. dollar and the yen fell after the Fed announced the creation of a new funding facility to thaw the frozen commercial paper market that is critical for funding day-to-day operations for many companies. That move raised risk appetites in currency markets, while it cut prices for U.S. and euro zone government debt.

But gold prices climbed, with an all-time high set in euro terms, Reuters data showed, as lingering fears over the outlook for the financial sector spurred buying. A weaker dollar against the euro also helped lift gold prices.

U.S. stocks fell sharply after the Federal Reserve's move failed to stem fears about the widening fallout from the credit crisis.

European shares closed down only modestly slightly, but financial shares on both sides of the Atlantic skidded. with European shares falling heavily on disappointment about the lack of a coordinated push by the world's leading central banks to cut interest rates.

"Banks need measures to boost their capital, and without real measures from the authorities, it's not a few take-overs or isolated rescues that will help stop the crisis," said Sebastien Barthelemi, an analyst at Louis Capital Markets in Paris.

"We need a strong move by governments. Each country has been reacting on its side, but we need something stronger to calm down markets," he said.

Shares in Royal Bank of Scotland and HBOS plunged nearly 40 percent on talk that the British government was mulling a possible bank recapitalization plan.

In New York, the S&P financial index <.GSPF> slid nearly 4 percent as shares of Bank of America skidded more than 14 percent a day after the bank announced a plan to raise as much as $10 billion to shore up its capital.

Bank of America also slashed its dividend and posted a slide in quarterly profit in a surprise announcement after U.S. markets closed on Monday.

After the global equity rout on Monday, which knocked the Dow below 10,000 for the first time in four years, investors hoped central banks might mount a coordinated response to calm jittery markets.

"I like this commercial paper market effort that the Fed is doing. It might help us domestically," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.

"But if we don't see Europe, whether it's the Bank of England or the European Central Bank, taking the kind of steps that we want, then how far can this really go? The markets want to see a coordinated effort."

Before 1 p.m., the Dow Jones industrial average <.DJI> was down 146.71 points, or 1.47 percent, at 9,808.79. The Standard & Poor's 500 Index <.SPX> was down 18.10 points, or 1.71 percent, at 1,038.79. The Nasdaq Composite Index <.IXIC> was down 36.83 points, or 1.98 percent, at 1,826.13.

The FTSEurofirst 300 <.FTEU3> index of top European shares ended 0.14 percent lower at 1,003.51 points, a day after the index posted its worst one-day percentage fall on record.

Other European banks hard hit by bearish sentiment included Commerzbank , down 14 percent, Barclays , which shed 17 percent, and Lloyds TSB off 13 percent.

The Fed's commercial paper announcement led investors to quickly unwind the heavy safe-haven buying of government debt that was seen on Monday.

"This is definitely a needed function. With the corporate bonds there has been a lot of speculation that they have been strapped for cash because of the lack of availability of commercial paper," said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts.

The benchmark 10-year U.S. Treasury note fell 8/32 to yield 3.49 percent, and the 2-year U.S. Treasury note fell 2/32 to yield 1.47 percent.

One-month Treasury bill rates jumped to yield almost 0.50 percent after the Fed announcement on buying up commercial paper. Short-term bills were heavily bought in recent days, with 1-month rates down almost to zero in a rush for the lowest-risk investment.

Investors had dumped risky assets in currency markets in recent days, which sent the dollar to a 13-month peak against the euro and sparking broad gains in the yen.

But the dollar fell against a basket of major currencies, with the U.S. Dollar Index <.DXY> off 0.62 percent at 81.172. Against the yen, the dollar rose 0.28 percent at 102.10.

In euro terms, gold rose to a new record of 654.22 euros an ounce, up from 635.29 euros late on Monday.

In New York, spot gold prices rose $13.75 to $871.20 an ounce.

"Gold's strength has been masked by the dollar," VM Group analyst Matthew Turner said. "The price today in euros is at an all-time high. Coin sales have been soaring and ETF demand is strong. There is a lot of demand out there for gold."

Gold often moves counter to the dollar's direction, especially when it is bought as an alternative investment to the U.S. currency.

Oil prices trimmed earlier gains. U.S. light sweet crude oil rose $1.23 to $89.04 a barrel.

But even with oil prices up on the day, the recent slide in the price of crude has worried some members of the Organization of Petroleum Exporting Countries.

"If this volatility continues, OPEC will have to do something," Shokri Ghanem, chairman of Libya's National Oil Corp, told Reuters by telephone. [ID:nL7182145]

Overnight in Asia, stocks outside Japan rose for the first time in four days. Japan's Nikkei share average <.N225> finished down 2.2 percent at a five-year low, but MSCI's index of Asia-Pacific stocks outside of Japan <.MIAPJ0000PUS> rose 1.5 percent, rebounding from a low last seen in December 2005. (Reporting by Kristina Cooke, Chris Reese, Wanfeng Zhou and Steven C. Johnson in New York and Atul Prakash, Jan Harvey, Ian Chua, Alex Lawler in London; Writing by Herbert Lash; Editing by Leslie Adler)