* Shares hurt by Greece worries
* ECB to address lending rules
* Euro zone bond spreads widen
* Wall Street facing losses
By Jeremy Gaunt, European Investment Correspondent
LONDON, April 8 (Reuters) - Fears about Greece's financial
stability intensified on Thursday, knocking stocks and the euro
lower and driving euro zone bond spreads to record levels.
Wall Street looked set to follow with a poor start.
The Bank of England and European Central Banks both left
interest rates unchanged. The ECB was expected later to try to
ease the financial squeeze on Greece with a statement on lending
rules. Markets have been hit by renewed jitters after the
country's banks asked for billions of euros in support.
The rules should remove the danger of Greek debt falling off
the list of what banks can swap for ECB loans next year if the
country faces more ratings downgrades. But they will also
introduce a sliding risk premium scale that could create funding
problems for banks.
The spread between Greek and German 10-year government bond
yields was at its widest in the euro zone's lifetime, shooting
above 450 basis points.
Greek bank stocks <.FTABNK> were down more than 5 percent.
"Fears about ... a vicious circle developing will likely
remain alive, and given that Greek government bonds are probably
among the most liquid assets that Greek banks have on the
balance sheets, this may continue to weigh on them," Barclays
Capital said in a note.
The mood spilled over into world stocks. MSCI's all-country
world index <.MIWD00000PUS> was down 0.6 percent. The
pan-European FTSEurofirst 300 <> lost more than 1 percent.
Earlier, Japan's Nikkei <> closed down 1.1 percent.
Some frustration was beginning to show in financial circles
that the Greece issue was not being solved.
"It is now up to the Greek government to go publicly to the
EU and IMF and ask for the cash and the support; the matter
cannot be long delayed," Chris Pryce, Fitch's senior analyst for
Greece, told Reuters in an interview.
EURO PAIN
The euro fell, grinding closer to this year's low against
the dollar.
"All the negative issues around Greece are still weighing on
the euro, not only against the dollar but against sterling and
the yen. Across the board the euro is suffering," said Niels
Christensen, currency strategist at Nordea in Copenhagen.
The euro <EUR=> was down at $1.3295, having hit a low around
$1.3282.
On euro zone government bond markets, benchmark yields were
down slightly but peripheral economy bonds were suffering along
with Greece, albeit to a far lesser extent.
Portuguese/German yield spreads hit 132 basis points, the
widest since early March.
(Additional reporting by Simon Falush, Jessica Mortimer and
Ingrid Melander, editing by Stephen Nisbet)
