LONDON Persistent fears about the world economy battered global stocks again on Monday and drove investors towards safer assets despite expectations of more interest cuts from the Federal Reserve to bolster growth.
Equity markets in Europe and Asia fell sharply with the pan-European FTSEurofirst 300 down around 2 percent, taking January's losses alone to more than 13 percent.
Japan's Nikkei early dropped nearly 4 percent on worries that the U.S. economy was already dragging Japan's down into recession.
Wall Street also looked set for a poor start with stock index futures pointing at sharp early losses.
"People remain pretty nervous. We haven't seen the full extent of the fall-out of subprime," said Jan Smedts, deputy head of equities for Dexia Group, referring to losses and turmoil in the U.S. mortgage sector.
Monday's losses on equity markets came despite efforts last week by U.S. authorities to stop that country's economic downturn, which is exacerbated by subprime losses and credit market worries.
It included an emergency 75 basis point Fed cut, a $150 billion fiscal stimulus plan from the White House and early discussions on how to bail out insurers whose underwriting of debt may yet trigger a new wave of losses.
The Fed is also expected to cut interest rates again this week with interest rate futures showing the market betting on another 25 or 50 basis points in cuts, possibly taking rates as low as 3.0 percent.
But many investors do not see these various moves having much immediate impact and remain in a strongly risk averse mood.
"In our view, the cuts already enacted, and the Fed's bias toward additional rate cuts, should help increase credit availability -- the jury is still out, however, as to whether this will happen fast enough," investment house BlackRock said in a note late last week on market volatility.
Currency investors have been using stocks as a guide for how much risk to take, favoring risky carry trades -- in which the low-yielding Japanese yen is used as a source of cheap funds to buy higher-yielding currencies -- whenever equities rally and reversing those trades when they fall.
Accordingly, the yen was firmer across the board,
The dollar, however, was being dragged down by the economic worries and prospects for lower interest rates.
The dollar fell 0.25 percent against a basket of major currencies to 75.789. The euro rose 0.4 percent to $1.4722.
The dollar also eased to 106.40 yen, down 0.3 percent, bringing its losses since the start of January to nearly 4.5 percent -- likely heading for its worst monthly performance in over 4 years.
Euro zone government bonds were generally higher as the economic worries boosted demand for lower-risk debt.
"It's stocks down, bonds up again," said a trader in London.
Two-year yields, which are sensitive to changes in interest-rate expectations, were 3 basis points lower at 3.404 percent. Ten-year yields were also down 3 basis points at 3.943 percent, below the psychologically important 4.0 percent level.