By Kristina Cooke NEW YORK, Oct 9 (Reuters) - U.S stocks plummeted for a seventh straight session on Thursday as investors bet recent moves by authorities worldwide to thaw frozen credit markets would not be enough to avert a global recession. An avalanche of selling at the close left the Dow below 8,600 for the first time since May 2003, and down almost 40 percent from its all-time closing high hit exactly one year ago. The Nasdaq and the S&P 500 each also fell to levels not seen in more than five years. Bank and insurance stocks got hammered again, as the previous day's coordinated global interest-rate cuts and myriad other official actions to unfreeze money markets did little to boost confidence in the financial sector. Some traders said the lifting of the ban on bets that financial stocks will drop may have contributed to the sell-off. Credit markets remained clogged. The interbank cost of borrowing dollars for any period beyond overnight rocketed -- three-month dollar Libor hit its highest this year. For more see [ID:nL9681115]. Shares of General Motors (GM.N: Quote, Profile, Research, Stock Buzz) tumbled 31.1 percent to its lowest level since 1950 as concerns mounted that an industry decline that started in the United States was spreading and a leading forecaster warned global auto demand could "collapse" in 2009. GM closed at $4.76. Exxon Mobil (XOM.N: Quote, Profile, Research, Stock Buzz) and Chevron (CVX.N: Quote, Profile, Research, Stock Buzz) led the Dow lower as the price of oil dropped below $87 a barrel on concerns a global slowdown would slam demand for energy. "We're way beyond fundamentals. This is just pure panic, that's all it is," said Chris Orndorff, managing principal and head of equity strategy at Payden & Rygel, in Los Angeles. The Dow Jones industrial average .DJI dropped 678.91 points, or 7.33 percent, to 8,579.19, while the Standard & Poor's 500 Index .SPX plummeted 75.02 points, or 7.62 percent, to 909.92. The Nasdaq Composite Index .IXIC sank 95.21 points, or 5.47 percent, to 1,645.12. The steep declines came on the anniversary of the Dow's all-time closing high above 14,000. Thursday's steep sell-off capped the Dow and the S&P's biggest seven-day decline since the October 1987 market crash, and the Nasdaq's worst seven-day decline since December 2000. "With no visible sign of restoration of normal credit movement, that is shaking investor confidence that the banking system at this point still has a long way to go before it gets fixed," said Frederic Dickson, senior vice president and market strategist at D.A. Davidson & Co, in Lake Oswego, Oregon. Dickson also noted that margin calls and hedge fund liquidations may be exacerbating selling as the stock market falls. The Dow average has lost 2,271.47 points in the last seven trading days -- the worst ever in such a period. Since its record closing high a year ago today, the Dow has tumbled 5,585.34 points -- or almost 40 percent. Energy companies Exxon Mobil (XOM.N: Quote, Profile, Research, Stock Buzz) and Chevron (CVX.N: Quote, Profile, Research, Stock Buzz) were the top drags on the Dow, falling 11.7 percent to $68.00 and 12.5 percent to $64.00, respectively, as the price of oil fell more than $2 to settle at $86.59 a barrel in the regular NYMEX session. In post-settlement trading, U.S. front-month crude hit a 12-month low near $84 a barrel. Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) plunged 25.9 percent to $12.45 on concern about the status of a planned $9 billion investment by Japan's top bank, Mitsubishi UFJ Financial Group Inc (8306.T: Quote, Profile, Research, Stock Buzz). But the bank shot down speculation about the deal and some traders blamed the steep drop on short-sellers after the end of a temporary ban of shorting in financial stocks. The market had risen early in the session, after tech bellwether IBM (IBM.N: Quote, Profile, Research, Stock Buzz) briefly raised hopes for the outlook for other technology companies. IBM ended the session lower, however, down 1.7 percent at $89, even after reporting solid results late on Wednesday. Prudential Financial (PRU.N: Quote, Profile, Research, Stock Buzz) shares fell 23.2 percent to $33.27 after the life insurer said third-quarter profit would be cut sharply by losses on poorly performing annuity and investment products and a legal settlement charge. . Shares of other life insurers tumbled, with the Dow Jones U.S. Life Insurance Index .DJUSIL shedding 18.5 percent. XL Capital (XL.N: Quote, Profile, Research, Stock Buzz) was one of the worst-hit companies in the sector, plunging 53.8 percent to close at $4.01 -- the steepest percentage decliner on the New York Stock Exchange. Sandler O'Neill said that because of investment leverage, they expect the mark-to-market effect on XL's book value to be greater than on the typical insurer they follow. The Chicago Board Options Exchange Volatility Index .VIX, Wall Street's preferred fear gauge, hit another all-time closing high -- jumping 11.11 percent to end at 63.92. Trading was active on the New York Stock Exchange, with about 2.04 billion shares changing hands, above last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.95 billion shares traded, above last year's daily average of 2.17 billion. Declining stocks outnumbered advancing ones on the NYSE by 12 to 1 and on the Nasdaq, by about 6 to 1. (Additional reporting by Leah Schnurr and Ellis Mnyandu; Editing by Jan Paschal)

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