GLOBAL MARKETS-U.S. stocks, dollar slip on banking, demand fears

* Stocks slide on worries about health of banking system

* Dollar rebounds, but sees biggest weekly loss since 1985

* Bond prices slip as investors mull impact of Fed program

* Oil falls as recession fears spur concerns about demand (Adds close of U.S. markets)

By Herbert Lash

NEW YORK, March 20 (Reuters) - The bugbears of the financial crisis returned to haunt markets on Friday, with U.S. stocks sliding on long-standing worries about the health of the banking system and oil falling on concerns demand is sluggish.

The U.S. dollar rebounded broadly from a slide sparked by the Federal Reserve's surprise announcement earlier this week that it would buy some $1 trillion of government and other debt in a bid to cut interest rates and revive consumer lending.

U.S. Treasuries slipped on modest profit-taking as the Fed's purchase plan supported debt even with $98 billion of new supply due to be auctioned next week. The Treasury market had its biggest one-day rally in more than 20 years on Wednesday

Stocks fared poorly as analysts' bearish comments hit General Electric and American Express fell after a broker warned of more losses and predicted the credit card company's dividend would be cut. Both shares fell 6 percent.

Chevron was among the Dow's biggest drags, dropping 3.6 percent, as oil prices fell because of a stronger dollar and economic concerns that were fueled by sliding stocks.

"A number of traders are still skeptical about the ability of this oil market to advance in the face of a recession," said Peter Beutel, president of Cameron Hanover in New Canaan, Connecticut.

U.S. crude for April , which expires on Friday, settled down 55 cents at $51.06 a barrel. May crude edged up 3 cents to settle at $52.07 a barrel.

London Brent crude rose 55 cents to settle at $51.22 a barrel.

In the United States financial shares fell for a second day, giving up some of their recent sharp gains, after investors applied for less than 2.5 percent of the $200 billion the Fed pledged to lend through a program considered key to reviving ailing banks. For details, see [nN19460872]

"The expectations for TALF were not met by any measure," said Michael Pento, senior market strategist at Delta Global Advisors, in New Jersey, referring to the Fed's Term Asset-Backed Securities Loan Facility.

The Dow Jones industrial average <.DJI> closed down 122.42 points, or 1.65 percent, at 7,278.38. The Standard & Poor's 500 Index <.SPX> shed 15.50 points, or 1.98 percent, to 768.54. The Nasdaq Composite Index <.IXIC> lost 26.21 points, or 1.77 percent, to 1,457.27.

Prices of government debt slid on concerns about the impact of the Fed's massive debt purchase program, which set benchmark yields on track for their biggest weekly drop this year.

"The Treasury market is still trying to come to grips with the shock (Fed) statement on Wednesday," said William O'Donnell, a UBS strategist in Stamford, Connecticut.

The benchmark 10-year U.S. Treasury note fell 10/32 in price to yield 2.64 percent. The 2-year U.S. Treasury note fell 1/32 in price to yield 0.88 percent.

The dollar clawed back some of the week's losses, but it still notched up its biggest weekly plunge against a basket of currencies <.DXY> since the 1985 Plaza Accord, when major economies agreed to a formal depreciation of the greenback.

Anticipating an oversupply of dollars, traders sold the currency broadly. The euro earlier this week hit a two-month high above $1.37 en route to its biggest daily gain since its 1999 inception.

While the dollar took a hit, a severe global recession will hurt other countries and their currencies too, said Mike Moran, senior currency strategist at Standard Chartered Bank in New York.

"That means we'll see a lower range for the dollar rather than a total meltdown, which is what the market is getting its head around today," Moran said.

The dollar rose against a basket of major currencies, with the U.S. Dollar Index <.DXY> up 0.96 percent at 83.868. Against the yen, the dollar rose 1.56 percent at 95.93.

The euro fell 0.87 percent at $1.3544.

Gold edged down as the dollar rebounded against the euro, prompting profit taking, and a two-day rally in commodity markets cooled as investors worried about demand.

Copper, soybeans and wheat were among markets that closed the week up to 8 percent higher on the rally sparked by the Fed's debt purchase program, which led the dollar to plunge.

U.S. gold futures for April delivery settled down $2.60 at $956.20 an ounce in New York.

Earlier in Europe, the pan-European FTSEurofirst 300 index <.FTEU3> of top shares rose 0.4 percent to 717.88 points.

Bayer jumped 11.3 percent after a U.S. panel put the company's new blood-clot drug Xarelto on track to win approval in its largest market [ID:nLK351784].

Tokyo markets were closed for a public holiday. The MSCI index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> lost 1.1 percent. (Reporting by Rodrigo Campos, Steven C. Johnson, Edward McAllister, Chris Reese and Barani Krishnan in New York, Joanne Frearson, George Matlock, and Jan Harvey in London; writing by Herbert Lash, Editing by Chizu Nomiyama)