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Growth worries slam stocks, oil, emerging markets

Traders work on the floor of the New York Stock Exchange (NYSE) February 10, 2014. REUTERS/Brendan McDermid

By Yasmeen Abutaleb

NEW YORK (Reuters) - Stocks in major global markets closed out one of their worst weeks of the year on Friday, with an index of global equities hitting an eight-month low, and oil slumping to a four-year low as worries about slowing global economic growth darkened the investment outlook.

Major Wall Street stock indexes fell for the third straight week, with the S&P 500 suffering its worst week since mid-2012, as selling accelerating late in the day.

Investors fled to the safety of government debt, with the 30-year Treasury bond's yield nearing the 3.0 percent level for the first time since May 2013.

Money managers have scrambled to reduce big bets in stocks and other risky assets as expectations for world economic growth have shifted in recent days. A raft of weak indicators from Europe and China in particular have collided with concerns about the U.S. Federal Reserve's plans to reduce monetary stimulus.

"In a vacuum of policy response, investors are selling first and asking questions later," said Jim McDonald, chief investment strategist at Chicago-based Northern Trust Asset Management, which has about $924 billion in assets under management.

"It smells like there is a high degree of involvement from systematic traders, rather than fundamental traders. The magnitude of the move has been disproportionate to the change in the fundamentals," he said.

The Dow Jones industrial average (.DJI) fell 115.15 points, or 0.69 percent, to 16,544.1, the S&P 500 (.SPX) lost 22.08 points, or 1.15 percent, to 1,906.13 and the Nasdaq Composite (.IXIC) dropped 102.10 points, or 2.33 percent, to 4,276.24.

The MSCI all-country world index <.MIWD00000PUS> ended down 1.6 percent to hit its lowest level since February, while the pan-European FTSEurofirst 300 (.FTEU3) index ended down more than 1.5 percent. The MSCI Emerging Markets Index (.MSCIEF) fell 1.8 percent.

In a sign of increased volatility, the CBOE Volatility Index (.VIX), or VIX, the market's favored gauge of Wall Street anxiety closed at 21.24, its highest level since December 2012, as more investors paid up for protection against further declines. More than 27 million contracts traded in the U.S. options market Friday, according to Trade Alert data, the busiest day of the year.

Concerns about global growth and rising oil production hit oil prices hard. Brent crude oil (LCOc1) fell to $89.62 a barrel, after seeing its lowest level since December 2010 at $88.11. U.S. November crude (CLc1) fell to $85.32 a barrel.

The risk aversion has boosted buying in safe-haven government debt. Lipper data shows U.S.-based taxable bond funds attracted $12.7 billion in inflows for the week ended Wednesday, a one-week record, while U.S. equity funds saw $6.7 billion in outflows, with most coming from exchange-traded funds.

The yield on the U.S. 10-year Treasury note fell to 2.2910 percent on Friday, the lowest level since June, and was up 10/32 in price.

Later this month, the Federal Reserve is set to end its asset purchase program that has been credited with boosting stock and bond markets over the past two years. Many observers doubt the recent stimulus measures unveiled by the European Central Bank will make up for the Fed program that some believe has masked underlying issues with demand.

"To some level, people forget how markets trade back and forth - it's not an ever-rising move with shallow pullbacks," said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

A string of dismal data from Germany and other large euro zone economies in recent weeks has fed anxiety over a possible return to recession in the region, and the jury is still out on the ECB's proposed policy response.

Some investors have been speculating that the ECB will be forced to launch a sovereign bond-buying program, styled on the Fed's quantitative easing.

China's shares ended down on Friday as investors remained cautious ahead of September economic data due next week. Economists expect the Chinese economy to have grown at its weakest pace in more than five years, according to a Reuters poll.

The U.S. dollar index (.DXY), which tracks the greenback against six major currencies, was up 0.44 percent at 85.902. Against the euro (EUR=), the dollar was up 0.61 percent at $1.2613. The dollar fell 0.1 percent against the yen to 107.71 yen (JPY=).

Euro zone bond yields bounced off record lows after top Federal Reserve officials hinted at an interest rate rise in the middle of next year, reversing some bets for a longer period of near-zero rates.

(Editing by Meredith Mazzilli and Leslie Adler)