Global stocks knocked by credit fears

By Ian Chua

LONDON (Reuters) - Jitters about further losses for the financial sector got the better of investors on Thursday, keeping global stocks under pressure and on track for their steepest monthly slide in over five years.

Wall Street looked set for a weak start with stock futures wallowing in the red as investors took cover in the safety of government bonds after Fitch Ratings downgraded bond insurer FGIC Corp's credit rating.

Standard & Poor's said it cut or may downgrade the ratings of hundreds of billions of dollars of U.S. mortgage-backed securities and collateralized debt obligations, taking the shine off another hefty interest rate cut by the Federal Reserve.

If bond insurers, or monoliners, lose their top "AAA" ratings, U.S. financial institutions will face fresh write-downs of as much as $70 billion, according to Meredith Whitney, banking analyst at brokerage Oppenheimer & Co.

"What's surrounding the monoline insurers is very important for the market because of the consequences it'll have for banks," said Thierry Lacraz, a strategist at Pictet & Cie.

This overshadowed the Fed's move on Wednesday to slash its key fed funds rate by 50 basis points to 3 percent -- the lowest since June 2005 -- following last week's emergency 75 basis point cut to halt a sharp slowdown in an economy struggling with a housing slump and credit crunch.

The FTSEurofirst 300 index of top European shares fell 1.6 percent with Germany's DAX, London's FTSE and France's CAC all down more than 1 percent.

MSCI world equity index was flat but has fallen about 9 percent so far in January -- its biggest monthly loss since late 2002.