* World stocks slump anew on economic data, financial fear
* Dollar, government debt gain in revived safe-haven bids
* Oil slides, economic data raises fear of deeper slowdown
(Recasts with U.S. markets, changes dateline; previous LONDON)
By Herbert Lash
NEW YORK, March 5 (Reuters) - World stocks careened lower on Thursday as a dismal forecast for euro zone growth and renewed worries about banks dragged down equities and boosted the safe-haven appeal of the dollar and government debt.
Oil fell more than 2 percent toward $44 a barrel as the deteriorating economic outlook heightened expectations that fuel consumption would shrink further. For details, see [ID:nSP418371]
The dollar rose against the euro and sterling after the European Central Bank and Bank of England cut borrowing costs to record lows. But the dollar fell versus the yen after it had earlier touched a four-month high near 100 yen. [ID:nN05321064]
Government bonds surged, with shorter-dated debt yields in the euro zone briefly touching their lowest level since the euro's launch after the ECB cut rates to 1.5 percent and signaled more reductions were possible. [ID:nL5598944]
Grim economic data signaled more fallout from recessions around the world and added to investors' gloomy mood. The major U.S. indexes traded around 12-year lows while a key index of leading European shares set a fresh lifetime closing low.
Worries about the financial system's health hit bank stocks again and investors fretted about the possibility that the embattled finance arm of General Electric could lead to a ratings downgrade for the entire company.
In another setback for American corporate icons, auditors for General Motors warned the once-mighty U.S. carmaker may not survive the crisis. GM's stock fell about 17 percent.
GE shares only slid 0.6 percent but financial shares tumbled, with the S&P financial index falling 8.1 percent as Citigroup sank below $1, calling into question its inclusion in the Dow Jones industrial average.
Dow Jones Indexes, creator of the iconic U.S. stock index, said it was watching the bank's situation closely.
After 1 p.m., the Dow Jones industrial average fell 206.05 points, or 3.00 percent, at 6,669.79. The Standard & Poor's 500 Index slipped 23.79 points, or 3.34 percent, at 689.08. The Nasdaq Composite Index shed 38.21 points, or 2.82 percent, at 1,315.53.
Financial shares also dragged European stocks lower after staff at the European Central Bank forecast the euro zone's economy could shrink by as much as 3.2 percent this year, reigniting fears of a deeper recession. [ID:nL5616972][ECILT/EU]
The FTSEurofirst 300 index of top European shares closed down 3.7 percent to a record low of 670.72 points.
The rout in Europe almost wiped out Wednesday's gains, driven by hopes for an economic recovery in China.
"What we see today is a sobering of the markets," said Hans-Juergen Delp, equity market strategist at Commerzbank in Frankfurt.
"Yesterday, we had euphoria that was solely due to China, but this can't be the cure to the crisis. The ECB's projection about the European economy is nothing more than blank realism."
Insurer Old Mutual fell 13.1 percent and British Life insurer Aviva plunged 33.4 percent.
The European Union's statistics office confirmed that gross domestic product in the fourth quarter shrank by the deepest ever quarterly drop in the euro zone. [ID:nL5880710]
The dollar rose against a basket of major currencies, with the U.S. Dollar Index up 0.56 percent at 88.983. Against the yen, the dollar fell 0.79 percent at 98.30.
The euro fell 0.59 percent at $1.256.
Government bonds rose as investors shifted out of riskier assets. The benchmark 10-year U.S. Treasury note gained 41/32 in price to yield 2.83 percent, and the 2-year U.S. Treasury note rose 2/32 in price to yield 0.91 percent.
U.S. light sweet crude oil fell $1.12 to $44.26 a barrel.
Spot gold prices rose $18.90 to $925.75 an ounce.
Japan's Nikkei average surged 2 percent on hopes that tentative signs of a Chinese rebound would boost exports. The MSCI index for Asia-Pacific stocks outside Japan was down 0.2 percent. (Reporting by Edward Krudy, John Parry, Steven C. Johnson in London and Emelia Sithole-Matarise and David Sheppard in London, Christoph Steitz in Frankfurt; writing by Herbert Lash; Editing by Kenneth Barry)