* World stocks near two-year lows
* Dollar falls back from 2008 highs
* Wall Street futures point to weak open
* Oil rises close to $118 a barrel
(Updates prices, adds Wall Street outlook)
By Jeremy Gaunt, European Investment Correspondent
LONDON, Aug 27 (Reuters) - World stocks hovered around
two-year lows on Wednesday with losses in Europe and Japan while
oil climbed for the third day in a row and the dollar slipped
back from recent highs.
Wall Street looked set for losses at the open.
Earnings concerns, worries about banking stress, Western
tensions with Russia over Georgia and a gloomy outlook for the
world economy all weighed on sentiment.
The euro gained half a cent on the dollar after European
Central Bank Governing Council member Axel Weber said talk of a
euro zone interest rate cut was premature.
With little specific to drive equities on Wednesday, one
Japanese stock analyst said his market was simply being "pulled
down by gravity".
MSCI's main gauge of world stocks <.MIWD00000PUS> was up
slightly as emerging market shares firmed, but still trading
around a two-year low.
It has lost more than 17 percent so far this year, on track
for one of its worst annual performances in more than 20 years.
European shares fell as weaker banking stocks outweighed the
impact of energy shares that gained on a rise in crude prices.
The FTSEurofirst index <> of pan-European shares was down
0.7 percent having gained 0.2 percent in the previous session.
"It's a difficult environment for the banking sector," said
Henk Potts, equity strategist at Barclays Stockbrokers.
"Financials have been under pressure due to concerns about
the speed of the economic slowdown and worries that there is
still further fallout from the subprime credit crunch issues."
Societe Generale noted that troubles at U.S. mortgage
agencies Freddie Mac and Fannie Mae were a threat to U.S.
commercial banks, which it estimated hold some $1 trillion in
the agencies' debt, or 9 percent of the banks' balance sheets.
Earlier, Japan's Nikkei average <> dipped 0.2 percent,
led lower by exporters such as Honda <7267.T> and property
shares which dropped after the collapse of another builder.
Sohken Homes <8911.T> filed for protection from creditors
with 33.8 billion yen ($308 million) in debt, the latest in a
string of collapses in the property and construction sectors.
GUSTAV LIFTS OIL, DOLLAR SLIPS
Barclays' Potts said stock investors were still concerned
about the high price of oil and its effect on inflation and
sentiment despite the price of crude now being well off its
recent, all-time highs.
Oil rose for a third straight session, above $117 a barrel,
on worries that Tropical Storm Gustav will threaten oil and
natural gas installations in the Gulf of Mexico.
Crude for October delivery <CLc1> rose $1.09 to $117.36 a
barrel, after settling up $1.16 on Tuesday.
Gustav was downgraded to a tropical storm on Wednesday after
it slammed into Haiti on Tuesday, but forecasters expect wind
speeds to regain hurricane force, and it could be the first
major storm to threaten oil and gas production in the Gulf of
Mexico since 2005 [].
The euro and yields on euro zone government bonds rose to
session highs after Bloomberg quoted the ECB's Weber as saying
talk of an interest rate cut is "premature".
"The market became too confident that rate cuts were on the
card," said a bond trader in London.
Weber, widely considered to be among the most 'hawkish' and
influential of ECB policymakers, said there is no scope for rate
cuts and hinted that there might even be room to raise them if
the economic outlook improved toward the end of the year.
The euro jumped on the headlines and was up three-quarters
of a percent at around $1.4756 <EUR=>.
The dollar index, a measure of the greenback's value against
six major currencies, fell 0.8 percent on the day to 76.76
<.DXY>, having hit a 2008 high on Tuesday at 77.619.
Euro zone government bond yields climbed after the Weber
comments promoted a sell off.
The interest rate-sensitive two-year Schatz yield <EU2YT=RR>
was up 8 basis points at 4.068 percent, while the 10-year Bund
<EU10YT=RR> was up 6 basis points at 4.172 percent.
(Editing by Swaha Pattanaik)
