World equities fall 1 percent, dollar rallies
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LONDON (Reuters) - World equities dropped to their lowest level in more than two years and the U.S. dollar hit a one-year high against the euro on Thursday, as investors fretted over global growth and took refuge in safer assets.
A strong dollar and concerns that the slowing global economy would dampen demand weighed on oil and commodity prices, with U.S. crude oil falling towards $102 and gold at 11-month lows.
Markets remained under pressure a day after leading U.S. investment bank Lehman Brothers posted a $3.93 billion third quarter loss and unveiled a plan to shed weak assets.
Global growth and financial concerns have encouraged U.S. investors to keep money at home, boosting the dollar and depressing riskier assets.
"Risk aversion is still hitting the markets, and is going to be there for quite some time," said Carlin Doyle, emerging markets strategist at State Street.
The MSCI main world equity index .MIW00000PUS fell 1.0 percent to its lowest since July 2006, and the FTSEurofirst 300 index .FTEU3 also dropped more than 1.0 percent, led by banking shares.
U.S. stock index futures pointed to a lower open on Wall Street, with Lehman Brothers LEH.N dropping 17.2 percent to $6 before the bell on broker downgrades.
The dollar hit a one-year high against the euro at $1.3894 and against an index of currencies .DXY, benefiting from broad risk aversion.
Sterling hit a 2-1/2 year low against the dollar at $1.7448 after Bank of England policymaker David Blanchflower pointed to a deeper than forecast decline in the UK economy and rises in unemployment soon.
Worries about the euro zone economy sent the single currency to its lowest in nearly two years at 148.38 yen, but euro zone government bond futures benefited from a safe haven flow from equities, trimming earlier losses to gain 3 ticks on the day.
"The euro zone economy is looking increasingly gloomy," said David Tinsley, economist at nabCapital.
"The source of volatility is coming...more from the euro zone economy rather than the U.S. economy, although there's a substantial amount of risk there as well."
Emerging sovereign debt spreads were trading at their widest levels in more than three years at 333 basis points over U.S. Treasuries, while benchmark emerging equities .MSCIEF fell 2 percent to the lowest since November 2006.
The strong dollar pushed commodity prices lower. Oil fell 0.8 percent to $101.93 a barrel, approaching recent five-month lows. Gold was trading at $743.50 an ounce, just above earlier 11-month lows.
(Additional reporting by Naomi Tajitsu; editing by Patrick Graham)
