* Global stocks inch lower, second day of declines
* Yen gains on weakness in equity markets
* Crude oil edges lower towards $71 a barrel
By Atul Prakash
LONDON, Aug 27 (Reuters) - World stocks fell for a second
consecutive day on Thursday and the yen extended broad gains,
with equity investors avoiding risky assets and preferring to
take profits from a rally to 10-month highs this week.
Asian markets led the decline, with Japan's Nikkei average
<> falling 1.6 percent and Shanghai shares <> down 0.7
percent. European stocks were subdued but off early lows.
The MSCI world stock index <.MIWD00000PUS>, which hit its
highest level since early October on Tuesday, was down nearly
0.1 percent at 275.63 points after falling as low as 275.18,
while emerging markets stocks <.MSCIEF> fell 0.4 percent.
"Whilst the rally hasn't truly run out of steam, it has
slowed down over the past couple of sessions as investors take a
breather to consider if this is in fact a fools rally or a
sustainable move to the upside," said Brian Myers, analyst at
ODL Securities in London.
"A sense of caution seems to be the overwhelming factor, as
lessons have been learnt from those still tending burnt
fingers," he added.
Macro-economic data continued to support the view that the
global economy was on a recovery path, but investors paused for
a breather at the fag end of the European summer holiday season.
Data showed that Australian business investment surged past
all expectations last quarter in a dramatically strong result
that suggests the economy is growing faster than anyone thought,
while consumer confidence in Italy rose by more than expected in
August to its highest level since March 2007.
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"Longer-term outlook is still probably positive and as long
as interest rates and inflation stay very low, people are still
looking for things to invest which actually generate meaningful
yield," said Edmund Shing, strategist at BNP Paribas, in Paris.
"That's still going to be things like equities in the longer
term, but that's being played up quite a lot in the short-term.
So there is still risk of a pull back first."
YEN GAINS; BONDS DEFY GRAVITY
The yen extended broad gains, hitting a five-week high
against the dollar, as investors turned towards relatively safer
and low-yielding assets such as the Japanese currency.
The dollar <JPY=> fell 0.8 percent to a low of 93.38 yen,
its lowest level since late July, before paring losses.
"The yen is strengthening today on doubts about the view that
China will pull the global economy out of recession," said Lutz
Karpowitz, currency strategist at Commerzbank in Frankfurt.
"Also, Asian equities were in minus territory, which is
supporting the yen."
But despite growing optimism about the global economic
recovery, euro zone government bond prices remained well
supported, with the 10-year Bund yield not far off a 3-1/2-month
low set on Wednesday.
"We have already highlighted this week that demand coming
from commercial banks, due to excess liquidity, as well as huge
wave of interest from foreign investors is the driving force
behind the move higher," Calyon said in a note.
"For the remainder of the week, it is difficult to go
against this move particularly with month-end bond index
extensions approaching, which is especially large for the U.S.
Treasury market."
European credit derivatives indexes edged wider on weaker
stock markets. The investment-grade Markit iTraxx Europe index
<ITEEU5Y=GF> was at 92.75 basis points, according to data from
Markit, 0.75 basis points wider versus late on Wednesday.
Among commodities, crude oil <CLc1> fell towards $71 a
barrel, extending losses by more than $3 after touching a
10-month high this week, as rising crude and diesel stocks
eclipsed healthy economic data from the U.S. and Europe.
(Additional reporting by Naomi Tajitsu, Ian Chua and Dominic
Lau; Editing by Jon Boyle)
