* MSCI world equity index down 0.65 pct at 338.18
* Merrill writedowns, weak economic data add to gloom
* Oil rises on supply concerns, dollar under pressure
By Natsuko Waki
LONDON, July 29 (Reuters) - World stocks hit a two-week low
on Tuesday after Merrill Lynch <MER.N> said it would take a $5.7
billion writedown to offload toxic debt, upsetting investors
already nervous about the health of the financial sector.
Oil rose for a second day in a row from last week's
seven-week trough as tensions in Iran and Nigeria stirred supply
concerns, while the dollar steadied off the previous day's
one-month high against the yen.
Data from key industrialised economies added to the gloom,
as French consumer confidence tumbled to a record low while
Japan's jobless rate rose to a near two-year high in an economy
that probably contracted in the second quarter.
The announcement by Merrill, the third largest U.S. bank,
came after U.S. regulators closed two regional banks on Friday,
marking the sixth and seventh bank failures this year as the
sector wrestles with the deepest housing slump since the Great
Depression.
That series of events, combined with mixed quarterly
results, raised concerns that the fallout from the credit crisis
has much further to run.
"The news from Merrill brings more uncertainty to the
market," said Rik Zwaneveld, trader at AFS Brokers in Paris.
"I don't think it's the end of the bad news. At this point,
what rules the market is not the corporate results we're
getting, but sentiment, and the lack of trust."
The FTSEurofirst 300 index <> fell 1.1 percent while
the MSCI main world equity index <.MIWD00000PUS> slipped 0.7
percent, its weakest in nearly two weeks.
Merrill said it would raise $8.5 billion by selling new
stock and in a sign of how toxic its debt holdings have become,
it agreed to sell $30.6 billion of collateralized debt
obligations (CDOs) for about 22 cents on the dollar.
The Wall Street investment bank and brokerage announced its
$5.7 billion third-quarter writedown less than two weeks after
posting a $4.9 billion second-quarter loss, hit by $9 billion of
writedowns in that period.
IMF WARNING
Further pressuring risky assets, the International Monetary
Fund said on Monday the bottom of the U.S. housing downturn was
not yet visible and kept its estimate that losses in U.S. assets
related to the subprime crisis could reach $1 trillion.
"The situation could be more troublesome now than February
and March. Instead of intense worry like (the near collapse of)
Bear Stearns, things are getting worse gradually," said Toshio
Sumitani, general manager at Tokai Tokyo Research Centre.
"Also differing from that time, the negative impact is
spreading beyond the financial sector to manufacturers."
The dollar lost 0.1 percent against a basket of major
currencies <.DXY> while it steadied at 107.55 yen <JPY=> after
rising above 108 on Monday.
Emerging sovereign spreads <11EMJ> tightened 1 basis point
while emerging stocks <.MSCIEF> fell 1.6 percent.
The September Bund future <FGBLU8> rose 0.1 percent as
safe-haven government bonds attracted risk averse capital.
U.S. light crude <CLc1> rose 0.5 percent to $125.24 a barrel
-- still more than $20 below its record high -- while gold
<XAU=> rose to $931.35 an ounce.
(Additional reporting by Blaise Robinson, editing by Mike
Peacock)
