GLOBAL MARKETS-US stocks flirt with bear market, euro rallies

* S&P flirts with bear market, down nearly 20 pct from high * U.S. crude oil reaches 2011 low as aid to Greece delayed * US dollar falls vs euro, Bernanke says Fed ready to act (Updates prices)

By Walter Brandimarte

NEW YORK, Oct 4 (Reuters) - U.S. stocks were on the verge of bear market territory on Tuesday, and U.S. crude oil prices fell to a 2011 low as investors worried about the economic implications of an increasingly likely Greek default.

The S&P 500 Index <.SPX>, a broad measure of the U.S. stock market, initially slid more than 20 percent from its 2011 closing high. Wall Street defines a drop of 20 percent or more from a recent high as a bear market which, for many investors, is a sign that stock losses may be sustained for a longer period of time.

Investors, however, received some comfort from a speech by Federal Reserve Chairman Ben Bernanke, who said the central bank was ready to act further to support the economy. For details, see [ID:nN1E7930IZ].

That statement, some investors said, left the door open to another round of quantitative easing policies, which also reduced the safe-haven appeal of U.S. government bonds and the dollar, allowing the euro to rally against the greenback.

"The economy is in a protracted slowdown, and until there's a resolution with Greece, that situation will continue to linger over the market," said Robert Pavlik, chief market strategist at Banyan Partners LLC in New York. "This could turn into a self-fulfilling prophecy of recession."

Greece appeared more likely to default on its debt after euro-zone finance ministers postponed a vital aid payment to Athens until mid-November. [ID:nL5E7L419D]

The impact of a possible default on the global economy and particularly on the banking sector worried markets after EU ministers said they were reviewing the size of private-sector involvement in a second bailout package for Greece.

Earlier in the day, the three major U.S. stock indexes fell more than 2 percent.

But stocks trimmed losses after Bernanke's speech, with the Nasdaq at one point rising more than 1 percent.

The Dow Jones industrial average <.DJI> was down 106.63 points, or 1.00 percent, at 10,548.67. The Standard & Poor's 500 Index <.SPX> was down 4.36 points, or 0.40 percent, at 1,094.87. But the Nasdaq Composite Index <.IXIC> was up 14.02 points, or 0.60 percent, at 2,349.85.

World stocks hit a 15-month low, with the MSCI All-Country World index <.MIWD00000PUS> falling 1.7 percent.

OIL AT YEAR'S LOW, EURO GAINS

U.S. crude oil prices dropped as low as $74.95 a barrel, its lowest since September 2010. The front-month U.S. crude oil contract was down 1.3 percent, or 98 cents, at $76.66 a barrel in early afternoon trading.

The euro was up 0.8 percent against the dollar at $1.3274, after hitting a near nine-month low against the greenback earlier in the session.

"We've been selling off over the last 48 hours or so, so we're overdue for a little bit of a bounce," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey. "The combination of people being short and Bernanke opening the door to QE3 is helping stabilize sentiment."

In the government debt market, longer-dated Treasuries led the losses, with 30-year bonds falling 1-5/32 in price for a yield of 2.778 percent.