World share prices set for worst month ever

LONDON (Reuters) - Shares in Asia and Europe fell on Friday, heading for their worst month ever, while the low-yielding yen shot up as Japan’s interest rate cut failed to quell concerns about the deteriorating global economic outlook.

The Bank of Japan joined a global easing cycle by trimming interest rates by 20 basis points to 0.3 percent, but disappointed many who had expected a bigger quarter point cut.

The move followed the Federal Reserve’s decision to cut interest rates to 1 percent this week -- its lowest level since June 2004 -- to stave off a prolonged recession.

The euro zone, Australia and Britain are expected to follow suit next week.

However, investors feared a round of rate cuts was not enough to stem the flow of worsening corporate earnings and bolster consumer consumption in major economies which might be already in recession.

In response, oil and commodities fell sharply.

“The road ahead still looks long and steep,” said Keith Bowman, equity analyst at Hargreaves Lansdown in London.

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“A relatively deep global recession could require further capital raising, with banks on this occasion going into a downturn in relatively poor shape,” he added.

MSCI world equity index .MIWD00000PUS fell 0.9 percent. The index has fallen 21 percent this month, on track for its worst monthly performance in the index's 20-year history.

Asian stocks ticked lower, while European shares .FTEU3 were down 0.9 percent. Both indexes also headed for their worst month ever.

U.S. crude oil fell 3.6 percent to $63.58 a barrel, down some 55 percent from its record high around $147 set in July. Gold fell to $724.10 an ounce and was set for its largest monthly fall in more than 30 years.

Emerging stocks .MSCIEF rose more than 1 percent. The December Bund future was slightly higher.

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The dollar fell more than 1 percent against the yen to 97.45 yen but held well above 13-year lows seen at 90.90 yen earlier this month, while the euro dropped 2.6 percent on the day to 123.95 yen even as the BOJ cut interest rates.

Risk-averse investors ran toward the low-yielding Japanese currency in droves, with the dollar also reaping the benefits of renewed deleveraging. The dollar .DXY rose 1.3 percent against a basket of major currencies.

Although the yen’s most recent leg higher is still some way off levels that galvanized the Group of Seven to issue a warning about excessive volatility in the yen earlier this week, options markets are still showing implied volatility at crisis levels.

“I don’t think for a second we can say we’ve seen the low in dollar/yen for this broader move, so once we retest that clearly there’s an ongoing threat of intervention,” UBS senior FX strategist Geoff Kendrick said.

Additional reporting by Natsuko Waki in London and Tyler Sitte in Frankfurt; Editing by Mike Peacock