* MSCI world equity index down 2.8 pct at 275.44
* Oil, emerging stocks also tumble as credit fears escalate
* Government bonds, gold, low-yielding yen soar
By Natsuko Waki
LONDON, Oct 6 (Reuters) - World stocks plunged to three-year
lows on Monday as investors fled to government bonds, gold and
the low-yielding yen, fearing policymakers' efforts to contain
the credit crisis might not be enough to prevent a recession.
Oil fell 4 percent to eight-month troughs and emerging
stocks tumbled 6 percent as the worst financial crisis in 80
years spread in Europe, where more governments were forced to
offer bank deposit guarantees due to a growing number of bank
failures.
Panic selling of shares in Russia prompted two stock
exchanges to halt trading while some banking shares in Iceland
and Italy were also suspended.
In South Korea, banks were having trouble raising foreign
currency funds and the government promised to give banks access
to the country's foreign exchange reserves, the world's sixth
largest at nearly $240 billion.
Despite weeks of huge liquidity injection by central banks,
money markets remained tight, reflecting deep reluctance by
banks to lend to each other.
"We have a seriously weak and fear-driven market on our
hands," said Tom Hougaard, chief market strategist at City
Index.
The FTSEurofirst 300 index <> fell 4.7 percent while
MSCI main world equity index <.MIWD00000PUS> lost 2.8 percent to
its weakest level since May 2005. The index has shed 31 percent
since January.
U.S. stock futures fell 2.2 percent <SPc1>, indicating a
sharply lower opening on Wall Street later.
A flurry of measures by countries around the world is doing
little to calm investor nerves. Germany, Austria and Denmark
followed Ireland in guaranteeing private deposit accounts after
European leaders failed to agree a concrete common rescue scheme
at a weekend meeting in Paris.
Leaders from France, Britain, Italy and Germany and European
Central Bank President Jean-Claude Trichet promised to take all
steps needed to ensure financial stability and to coordinate.
The emergency summit came as the U.S. government enacted a
landmark $700 billion bank bailout on Friday.
"The arctic credit ice thickens. (Various) governments
dispatch all manner of credit ice breakers. Yet the credit ice
still thickens," Barclays said in a note to clients.
ICELAND FIGHTS AGAINST MELTDOWN
The yen surged 1.7 percent to 103.22 per dollar <JPY=> while
the euro hit a 13-month low of $1.3542 <EUR=>. The dollar <.DXY>
rose 0.3 percent against a basket of major currencies.
Turmoil escalated in Iceland, where the crown currency fell
nearly 19 percent on the day to hit a record low of 199.99 to
the euro <EURISK=D3>, according to the Reuters dealing system.
The government is scrambling to avert a financial meltdown
after authorities also failed to agree any specific measures
over the weekend.
The interbank cost of borrowing euros for three months rose
to 5.33750 percent <LIBOR> at the daily fixing in London, more
than 100 basis points above the ECB's benchmark interest rate.
For the dollar, three-month interbank rates were 4.28875
percent. This compares with market expectations that the Federal
Reserve will have cut interest rates to 1.50 percent by January,
half a percentage point below the current rate.
The December Bund future <FGBLc1> rose 113 ticks, drawing in
funds seeking safer assets. Gold <XAU=>, seen as a safer asset,
rose to $842.80 an ounce.
Emerging sovereign debt spreads <11EMJ> widened 11 basis
points while emerging market stocks <.MSCIEF> lost 6.3 percent.
In Russia, the main exchange indexes lost 14-15 percent <>
<>.
U.S. light crude <CLc1> fell 4.2 percent to $89.91 a barrel
as concerns grew but the slowing economy would choke off energy
demand.
