* U.S. stocks fall; weak housing data spurs recession fear
* Yen gains broadly as stocks retreat, risk appetite fades
* Government debt prices up as safety bids return
* Oil rises as OPEC expected to cut supplies (Recasts with U.S. markets, adds byline; changes dateline; previous LONDON)
By Herbert Lash
NEW YORK, Oct 17 (Reuters) - A new batch of weak U.S. housing data on Friday added to growing worries about a widening global slowdown, helping to pull down U.S. stocks and curb a rise in crude oil prices and European equity markets.
Government debt prices strengthened and the dollar weakened on the Commerce Department data for September, which showed construction starts on U.S. homes fell to a new 17-1/2 year low and permits for new homes to a nearly 27-year low.
Oil rose back above $70 a barrel on hopes that oil exporters could cut their output.
The weak economic outlook kept U.S. equities under water and prospect for tame inflation was bullish for U.S. government and euro-zone bonds, lifting their prices.
"We're going to stay in a weak housing pattern and that puts more emphasis on the fact that the economy is falling deeper into recession," said Kevin Giddis, head of fixed-income trading at Morgan Keegan in Memphis, Tennessee.
"Rather than being short and shallow, the recession is getting wider and deeper," Giddis said.
The further deterioration in housing also offset reassuring
profits at manufacturer Honeywell International Inc
At 10 a.m., the Dow Jones industrial average <.DJI> was down 74.71 points, or 0.83 percent, at 8,904.55. The Standard & Poor's 500 Index <.SPX> was down 6.72 points, or 0.71 percent, at 939.71. The Nasdaq Composite Index <.IXIC> was down 8.49 points, or 0.49 percent, at 1,709.22.
European shares rose nearly 2 percent in choppy trade, led by drug and energy shares.
The FTSEurofirst 300 <.FTEU3> index of top European shares was up 2.8 percent at 882.12 points.
Wild swings in stock prices remained a concern.
"This is the most volatile week we've seen," said Thierry Lacraz, strategist at Swiss bank Pictet in Geneva. "The sole intelligent thing is to remain on the sidelines and not make any huge bets."
Crude prices drew support from a decision by the Organization of Petroleum Exporting Countries to bring an emergency meeting forward to next week, which raised expectations of a supply cut.
U.S. light sweet crude oil
With signs of economic trouble now emerging in Eastern Europe and Asia, investors have reversed risky trades financed with low-yielding yen, helping lift the Japanese currency at the expense of its higher-yielding rivals, such as the euro.
Against the yen, the dollar
The dollar, which benefits from risk aversion because dollar-based investors repatriate funds, gained on the euro.
The euro
"The focus is shifting from the credit crisis to a looming global recession," said Omer Esiner, senior currency analyst at Ruesch International in Washington.
"I'd characterize recent U.S. data as dismal, but no matter how bad things get here, the global picture looks just as bad," he said.
Gold fell more than 3 percent, extending the previous session's losses, as the dollar firmed against the euro, and investors sold bullion to cover losses on other markets.
Spot gold prices
Euro-zone government bond futures climbed more than half a point on thin volume to hit a one-week high, gaining momentum weak U.S. economic data.
The benchmark 10-year U.S. Treasury note