World stocks tumble as Britain votes for EU exit

By Herbert Lash and Edward Krudy

NEW YORK (Reuters) - Global capital markets reeled on Friday after Britain voted to leave the European Union, with $2 trillion in value wiped from equity bourses worldwide, while money poured into safe-haven gold and government bonds. Sterling suffered a record plunge to a 31-year low.

The blow to investor confidence and the uncertainty the vote has sparked could keep the Federal Reserve from raising interest rates as planned this year, and even spark a new round of emergency policy easing from major central banks.

The move blindsided investors, who had expected Britain to vote to stay in EU, and sparked sharp repricing across asset classes. Mainland European equity markets took the brunt of selling as investors feared the vote could destabilise the 28-member bloc by prompting more referendums.

The traditional safe-harbour assets of top-rated government debt, the Japanese yen and gold all jumped. Spot gold rose nearly 5 percent and the yield on the benchmark 10-year U.S. Treasury note fell to lows last seen in 2012 at 1.5445 percent.

Stocks tumbled in Europe. Frankfurt (.GDAXI) and Paris (.FCHI) each fell 6 percent to 8 percent. Italian (FTMIB) and Spanish (.IBEX) markets, and European bank stocks overall (.SX7P), were headed for their sharpest one-day drops ever.

London's FTSE (.FTSE), however, dropped 2.3 percent, with some investors speculating that the plunge in sterling could benefit Britain's economy.

"This is an historic event and will not be swept under the rug very quickly," said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

"That said, markets will not remain in turmoil as they are at the moment for an extended period of time. There is no indication that the global financial markets are anywhere near a meltdown as we saw in 2008. The UK will not collapse and the EU will not collapse anytime soon."

Still, Britain's big banks took a $100 billion battering, with Lloyds (LLOY.L), Barclays (BARC.L) and RBS (RBS.L) plunging as much as 30 percent, although they cut those losses in half later in the day.

Stocks on Wall Street opened more than 2 percent lower, with the Dow Jones industrial average dropping as much as 538 points.

The Dow Jones industrial average (.DJI) fell 463.63 points, or 2.57 percent, at 17,547.44, the S&P 500 (.SPX) lost 57.03 points, or 2.7 percent, at 2,056.29 and the Nasdaq Composite (.IXIC) was down 153.38 points, or 3.12 percent, at 4,756.67.

MSCI's all-country world stock index fell 3.8 percent.

Results showed a 51.9/48.1 percent split for leaving, setting the UK on an uncertain path and dealing the largest setback to European efforts to forge greater unity since World War Two.

The British pound dived by 18 U.S. cents at one point, easily the biggest fall in living memory, to its lowest since 1985. The euro slid 3 percent to $1.1050 (EUR=) as investors feared for its very future.

Sterling was last down 7.6 percent at $1.3751 (GBP=), having carved out a range of $1.3228 to $1.5022. The fall was even larger than during the global financial crisis and the currency was moving two or three cents in the blink of an eye.

The Bank of England, European Central Bank and the People's Bank of China all said they were ready to provide liquidity if needed to ensure global market stability.

SHOCKWAVES

The shockwaves affected all asset classes and regions.

The safe-haven yen jumped 3.8 percent to 102.38 per dollar (JPY=), having been as low as 106.81. The dollar's peak decline of 4 percent was the largest since 1998.

Emerging market currencies across Asia and eastern Europe and South Africa's rand all buckled on fears that investors could pull out. Poland's zloty (PLN=) slumped 4 percent.

Europe's safety play, the 10-year German government bond, surged with yields tumbling back into negative territory and a new record low.

MSCI's broadest index of Asia-Pacific shares outside Japan slid almost 5 percent. Tokyo's Nikkei (.N225) saw its worst fall since 2011, down 7.9 percent.

Investors stampeded into low-risk sovereign bonds, with U.S. 10-year notes gained nearly two full points in price to yield 1.577 percent. Earlier, the yield dipped to 1.406 percent.

The rally even extended to UK bonds, despite a warning from ratings agency Standard & Poor's that it was likely to downgrade Britain's triple-A credit rating if it left the EU. Yields on benchmark 10-year gilts fell 26 basis points to 1.109 pct .

Across the Atlantic, investors were pricing in less chance of another hike in U.S. interest rates given the Federal Reserve had cited a British exit from the EU as one reason to be cautious on tightening.

"A July (hike) is definitely off the table," said Mike Baele, managing director with the private client reserve group at U.S. Bank in Portland, Oregon.

Fed funds futures were even toying with the chance that the next move could be a cut in U.S. rates.

Oil prices slumped by more than 4 percent amid fears of a broader economic slowdown that could reduce demand. U.S. crude (CLc1) shed $2.02 to $48.09 a barrel while Brent (LCOc1) fell 4.3 percent to $48.70 before.

Industrial metal copper (CMCU3) sank 1.3 percent but gold (XAU=) galloped nearly 5 percent higher thanks to its perceived safe haven status.

(Editing by Catherine Evans and Nick Zieminski)