YAHOO: Stocks may have closed with substantial losses Friday, but the extent of the downturn was far better than many initially feared.

Index futures were limit down ahead of the session's opening bell, which occurs when trading is halted in order to pace losses amid frantic selling efforts. That had participants spooked and anticipating a large scale sell-off.

Stocks fell to their session low early on. At that point, the Dow was down 5.8%, the S&P 500 was down 6.1%, and the Nasdaq fell 6.9% to a new five-year low. Choppy trading gave way to a late session rally that helped stocks finish off their lows.

The bleak mood in early trading stemmed from continued fear of a global recession as England's economy contracted by a worse-than-expected 0.5%. That prompted London's FTSE 100 to close with a 5.0% loss. Other major European markets also saw losses, but none matched the 9.6% drop in Japan and the 8.3% fall in China.

The argument that slower global growth will undercut demand for oil has crude prices down 56% from their July high. That prompted OPEC to schedule an emergency meeting in which it decided to cut daily production by 1.5 million barrels, effective immediately. Oil prices fell further, though. Crude futures were down 7.7% at one point, but ended around 4.5% lower at less than $65 per barrel. Oil last traded there in mid-2007.

A dour outlook from global tech company Microsoft (MSFT 21.96, -0.36) only reaffirmed the fear that earnings prospects are clouded by macro concerns. The company posted better-than-expected revenue and earnings per share results for its latest quarter, but guided profits below the consensus estimate for both the fourth quarter and fiscal 2009.

With economic concerns abounding, markets believe the FOMC is certain to cut the fed funds target rate. Currently, there is a 78% probability it will be taken to 1.00%, and a 22% it will be taken to 0.75%, down from the current 1.50%.

The move by the Fed would complement other government efforts to restore financial and credit markets. For instance, sources indicated the U.S. Treasury is looking to further extend the use of funds in its TARP emergency plan to begin helping regional banks and possibly even insurers. PNC Financial Services (PNC 58.88, +2.00) plans to issue to the U.S. Treasury $7.7 billion of preferred stock and related warrants under the TARP program, which will help in its acquisition of National City (NCC 2.07, -0.68).

Lower interest rates would also aim to help restore the housing market by making loans more affordable. That would help the housing industry, which actually saw existing home sales increase 5.5% in September from the prior month to an annualized rate of 5.18 million units.

Despite the likelihood an interest rate cut and persistent volatility in major stock indices, the dollar continues to appreciate against foreign currencies. The dollar index, which measures the greenback's value against a basket of six major currencies, jumped 1.3% to a two-year high. DJ30 -312.30 NASDAQ -51.88 NQ100 -3.0% R2K -3.8% SP400 -2.9% SP500 -31.34 NASDAQ Adv/Vol/Dec 566/2.65 bln/1713 NYSE Adv/Vol/Dec 561/1.58 bln/2552