World stocks fall on financial shares, oil drops

By Elzio Barreto

SAO PAULO (Reuters) - World stocks edged lower on Friday, getting no relief from a decline in crude prices as concerns of further banking write-downs weighed on financial shares.

Oil prices fell more than a dollar a barrel after Iran responded to an incentives package offered by six world powers in a bid to resolve a dispute over its nuclear development program.

But the decline in crude prices was not enough to give markets a boost, with European shares slumping after Goldman Sachs said banks may need to raise 60-90 billion euros in total. The broker lowered 2008-09 estimates for than 40 banks and said the sector would be hampered by the risk of additional capital raisings.

"It has become almost 'politically incorrect' to have banking stocks in a portfolio," said Alain Bokobza, head of strategy at Societe Generale in Paris.

The euro hit a one-week low against the U.S. dollar but gave up losses after European Central Bank President Jean-Claude Trichet said he had no bias on monetary policy, dousing speculation about aggressive rate hikes this year. The ECB raised rates a quarter percentage point on Thursday.

Gold was steady in light trading with New York markets closed for the U.S. Independence Day holiday. But copper, zinc and other metals fell as worries about supply disruptions in Peru, where union support for a nationwide mining strike was collapsing.

Trading in Latin American stocks was slower than usual because of the U.S. holiday, with markets in Chile and Mexico posting modest gains and Brazil's bourse edging lower.

"The market is going to trade sideways with the closing there (in the United States)," said Junior Hydalgo, director of Trust Investimentos in Sao Paulo.

The FTSEurofirst 300 index .FTEU3 dropped 1.3 percent while the MSCI main world equity index .MIWD00000PUS fell 0.4 percent, having hit its lowest intraday level since January on Thursday.

In Brazil, the benchmark Bovespa index .BVSP fell 0.3 percent, while Mexico's .MXX IPC index firmed 0.02 percent and Chile's IPSA index .IPSA was up 0.1 percent.

EMERGING FALLOUT

Emerging sovereign spreads 11EMJ tightened 2 basis points while emerging stocks .MSCIEF fell 0.4 percent.

Analysts say emerging markets, especially in Asia, will be more severely hit by the rising energy costs.

"The monumental energy price increases will be a 'game-changer' for Asia, in our view," said Stephen Jen, head of global currency research at Morgan Stanley.

"While there is some scope for remedial policy action to 'amortize' this shock, Asia ex-Japan currencies will likely weaken against the dollar and assets should underperform in the period ahead," Jen said.