(Updates, adds Wall Street outlook)
* Oil tumbles to $108 a barrel
* Dollar at 10-month highs against other majors
* Stocks boosted by lower oil, but emerging markets hit
* Wall Street set for bullish open
By Jeremy Gaunt, European Investment Correspondent
LONDON, Sept 2 (Reuters) - Hurricane Gustav's fading winds
pulled the plug on oil on Monday, dropping the price to around
$108 a barrel, boosting the dollar to 10-month highs and lifting
European stocks.
Wall Street also looks set for a bullish start, but emerging
markets fell to a near 18-month low on economic and political
worries.
Thailand was particularly in focus after Prime Minister
Samak Sundaravej's declaration of a state of emergency.
Oil was undergoing a relative rout, with the price of New
York crude <CLc1> down around $7.50 a barrel at $108. It fell as
low as $105.86, a level last seen about five months ago.
A weakened Hurricane Gustav, now downgraded to a tropical
storm, spared major oil facilities in the U.S. Gulf, allowing
traders to look at more fundamental demand issues.
"There is another month of peak hurricane season to go, and
there will be other threats," Michael Wittner, global head of
oil research at Societe Generale, said in a research note.
"However, the market reaction to Gustav has confirmed our
opinion that when the disruption threats fade, the underlying
factors (for oil) are bearish."
The fall combined with an ongoing trend to dump European
currencies on a souring global growth outlook, lifting the
dollar to a 10-month high against major currencies.
The dollar index <.DXY>, a gauge of its performance against
six major currencies, climbed around 1.3 percent to 78.157. The
euro slid 0.8 percent to below $1.45 <EUR=>.
Britain's pound also continued to get a drubbing on the UK's
poor economic outlook, falling more than 1 percent to just over
$1.780 <GBP=>.
"No one wants to catch a falling knife, and sterling is that
falling knife," said Divyang Shah, chief strategist at
Commonwealth Bank of Australia.
The Organisation for Economic Co-operation and Development
said Europe's economy in general was slowing but that Britain
would move into recession in the third and fourth quarters.
EMERGING SLIDE
The decline in oil prices and the euro's slide boosted
European exporters, lifting the FTSEurofirst 300 index <>
up around 0.7 percent.
But economic and political woes battered emerging market
shares.
Emerging stocks as measured by MSCI's benchmarket sector
index <.MSCIEF> fell at one point to their lowest level in about
18 months.
Thai Army chief Anupong Paochinda said he would not use
force to evict protesters occupying the prime minister's
official compound despite a state of emergency giving him the
power to do so.
Central banks in Malaysia, India and elsewhere in Asia
defended their weak currencies.
"Central banks are trying their best to stop the flood of
outflows," a trader in Singapore said.
In South Korea, where the won <KRW=> has been plumbing
multi-year lows, the authorities restricted their efforts to
meetings and warnings. The won dropped to a 4-year low against
the dollar with investors concerned about a flight of capital
from Asia's fourth-largest economy.
Euro zone government bonds were lower, with 2-year yields
<EU2YT=RR> rising 10 basis points to 4.131 percent and 10-years
<EU10YT=RR> up 9 basis points to 4.218 percent.
(Additional reporting by Naomi Tajitsu; Editing by Victoria
Main)
