* MSCI world equity index up 0.2 pct at 334.97
* Sterling hits 12-year low on trade-weighted basis
* Oil up 1.4 percent; Stocks, euro firmer
By Natsuko Waki
LONDON, Aug 28 (Reuters) - Weak UK housing and retail sales
data knocked sterling to a 12-year low on Thursday, while oil
prices edged up as Tropical Storm Gustav threatened to damage
U.S. oil installations in the Gulf of Mexico.
Stocks erased early losses and Wall Street was set for a
steady open. The euro extended its rebound from Tuesday's
six-month low against the dollar as recent hawkish comments by
euro zone central bankers dampened expectations of a rate cut.
The Nationwide building society said UK house prices fell
almost 2 percent on the month in August to post their biggest
annual drop since 1991. A survey from the Confederation of
British Industry showed UK retail sales fell at their sharpest
annual pace in at least a quarter of a century in August.
The figures, following data showing the economy failed to
expand in the second quarter, have strengthened the case for a
recession and lower interest rates.
"The (UK) housing market downturn seems to be gathering pace
which delivers a further blow to consumer spending as the wealth
accumulation from the housing market dries up," said Adam Cole,
global head of foreign exchange strategy at RBC Capital Markets.
Sterling fell to 89.7 on a trade-weighted basis, its lowest
since October 1996.
Investors are pricing in a chance that the Bank of England
might cut interest rates from 5 percent before the end of 2008.
Signs of the global economic slowdown was also evident
elsewhere with Toyota Motor Corp <7203.T>, the world's biggest
automaker, cutting its 2008 sales forecast by nearly 7 percent.
However, world stocks bounced higher with banks, insurers
and financial services firms gaining after a recent tumble.
The MSCI main world equity index <.MIWD00000PUS> rose 0.2
percent while the FTSEurofirst 300 index <> ticked 0.1
percent higher. Emerging stocks <.MSCIEF> dipped 0.2 percent.
GUSTAV THREATENS
Tropical Storm Gustav is forecast to regain hurricane status
on Sunday when it moves into the southern Gulf of Mexico, home
to a quarter of U.S. crude oil production and 15 percent of its
natural gas output.
It will be the first major hurricane to threaten U.S. energy
installations since hurricanes Katrina and Rina in 2005.
"Gustav...is on track to pose a sizeable threat to both
upstream and downstream production capacity," Thomas Stenvoll,
energy strategist at UBS, said in a research note.
"The impact of Gustav on the downstream sector could be felt
more acutely."
U.S. crude rose 1.4 percent to $119.77 a barrel <CLc1> but
remained well below its record peak of $147.27 hit on July 11.
Higher oil, coupled with firmer gold prices <XAU=>, saw the
the dollar <.DXY> soften 0.4 percent against a basket of major
currencies.
The euro rose 0.5 percent to $1.4791 <EUR=> after European
Central Bank policymakers on Wednesday doused speculation that
slowing growth and easing commodity prices would spur them to
cut interest rates anytime soon.
The September Bund future <FGBLU8> rose 15 ticks while
emerging sovereign spreads <11EMJ> narrowed 4 basis points to
trade at 306 bps over U.S. Treasuries.
(Additional reporting by Simon Falush, Jane Merriman and
Sebastian Tong, editing by Swaha Pattanaik)
