Global stocks tumble

A foreign exchange trading company displays the rate of the Japanese yen against the U.S. dollar in Tokyo December 12, 2008.

LONDON (Reuters) - World stocks tumbled, Wall Street was set to fall sharply hard and the yen hit a 13-year high against the dollar on Friday after a $14 billion rescue plan for top U.S. automakers collapsed.

Oil fell 6 percent.

Investors fled risky currencies, pushing sterling to record lows against the euro and on a trade-weighted basis, while their rush to safer government bonds drove the yield on the U.S. 10-year Treasury yield to its lowest in more than five decades.

The U.S. Senate failed to reach a last-ditch compromise to bail out automakers on Thursday, effectively killing any chance of congressional action this year which many say is necessary to prevent a further lurch down for the already-shrinking economy.

"The key theme has been the rejection of the auto bailout deal. This has clearly hit risk sentiment hard and helped to fuel yen gains," BTM-UFJ currency economist Lee Hardman said. MSCI world equity index .MIWD00000PUS fell 1.8 percent, having hit a one-month high on Thursday. The FTSEurofirst 300 index of leading European shares .FTEU3 lost 4.5 percent. Asian shares .MIAP0000PUS were down 5.6 percent.

News that Bank of America (BAC.N) would cut up to 35,000 jobs and UK bank HBOS took a 8 billion pound hit on bad debts and other charges this year, and a warning from JP Morgan (JPM.N) on fourth-quarter performance, hit the banking sector, the epicenter of the credit crisis which began in August 2007.

Bank of America, HBOS HBOS.L and JP Morgan (JPM.F) shares fell 9 percent in Europe. JP Morgan's chief executive Jamie Dimon said on Thursday the bank has had a "terrible" November and December.

U.S. stock futures fell 2.3 percent. Emerging stocks .MSCIEF fell 3.4 percent.

U.S. crude oil fell 6.4 percent to $44.93 a barrel as concerns grew over energy demand in the slowing global economy.

The benchmark 10-year U.S. Treasury yield fell as low as 2.48 percent as capital chased safer assets.

The December Bund futures rose 63 ticks.

The low-yielding yen rose as high as around 88.40 per dollar according to Reuters data, shooting above a level where Group of Seven finance ministers warned about excessive yen strength in October.

According to a Royal Bank of Canada model, the probability of Japanese intervention in the currency market stands at 33 percent.

"We ... would not suggest being long dollar/yen on an expectation of imminent intervention," the bank said.

"However, growing concern on intervention will in our view constrain dollar/yen to a relatively narrow range in the early months of 2009."

Sterling hit record lows against the euro and on a trade-weighted basis. It fell to 89.41 pence per euro.

The dollar .DXY was steady against a basket of major currencies.

(Additional reporting by Jessica Mortimer, editing by Mike Peacock)