London, March 17: (Reuters): Global stocks fell sharply and the dollar tumbled on Monday as a fire sale of Bear Stearns and an emergency US Federal Reserve cut of a key lending rate sparked fears that a worldwide credit crisis will claim more casualties.

Traders reported that money markets were near standstill with banks increasingly wary of lending to each other.

European shares sank nearly 3.5 per cent, following a sell-off in Asia where Japan's leading indices shed 3.7 per cent.

In the US, financial shares tumbled, with Bear down nearly 90 per cent and Lehman Brothers down more than 22 per cent at $30.30 on the New York Stock Exchange. One exception was the JPMorgan stock, up 9.1 per cent to $39.86 on the NYSE, which helped stem declines on the Dow.

The Dow Jones industrial average fell 0.15 per cent, to 11933.50. The Standard & Poor’s 500 Index dropped 1.29 per cent, to 1271.56. The Nasdaq Composite Index slid 1.72 per cent to 2174.46.

Earlier, Japanese stocks fell to about a 2-1/2 year closing low, dragged down by exporters worried about a rising yen.

The Nikkei average fell 3.7 per cent or 454.09 points to end at 11787.51, its lowest finish since August 8, 2005.

The broader Tokyo Stock Price Index shed 3.7 per cent or 43.58 points to 1149.65, the lowest close since June 2005.

The dollar plunged across the board. It slid as much as 3 per cent in early Monday trading to as low as 95.77 yen according to Reuters data, the lowest since 1995, and set fresh all-time lows at 0.9637 Swiss francs.

It later recovered to 96.88 yen and 0.9838 Swiss franc. The euro soared as high as a new record $1.5904 before dropping back to $1.5774. The weak dollar drove oil prices higher before it eased back. Crude for April delivery was up 5 cents at $110.28 a barrel, off a record $111.80 hit earlier.

Investors dived into safer assets. Spot gold hit $1,030 an ounce, before falling back to around $1,022 an ounce. “The markets are in a complete state of panic and in such situations there is no such thing as valuation or value in any asset,” said Michael Klawitter, a strategist at Dresdner Kleinwort in Frankfurt.

In a shock move late on Sunday, the US Fed lowered the discount rate it charges on direct loans to banks to 3.25 per cent from 3.50 per cent and implemented steps to provide cash to a wider range of financial firms, using tools last used during the Great Depression. The Fed is meeting again tomorrow to discuss rates.

“This is going to get worse the longer the market prolongs the inevitable,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. “With all these discount rate cuts, it seems like the Fed is running out of silver bullets. Maybe they have to come up with something bigger.”

“Gold will be the main beneficiary (of the falling dollar) as a hedge against global risk,” said Australia & New Zealand Bank senior commodities analyst Mark Pervan.

There were also signs of continuing liquidity worries — three-month interbank lending rates for euro and sterling leapt.

The Bank of England said it would offer £5 billion ($9.85 billion) of three-day funds in an exceptional fine-tuning operation designed to bring overnight interest rates down.

“This action is being taken in response to conditions in the short-term money markets this morning,' the BoE said.