* MSCI world equity index down 0.5 pct at 330.98
* Economic worries drives oil, stocks, sterling lower
* Dollar hits 11-month high, government bonds firm
By Natsuko Waki
LONDON, Sept 3 (Reuters) - Concerns over the health of the
global economy hit financial markets on Wednesday, knocking oil
below $109 a barrel, pushing world stocks lower and lifting the
dollar to 11-month peaks.
World stocks fell towards last month's two-year trough,
while emerging market stocks hit a 17-month low with lower
commodity prices weighing on resource stocks, while safe-haven
government bonds gained as inflation worries eased.
U.S. crude oil prices <CLc1> are now more than $40 as
weakening Hurricane Gustav shifted investor focus back to softer
energy demand as a result of the slowing global economy.
"It's the economy, economy, economy. Everyone's worried
about demand destruction," said Robert Nunan, risk management
executive at Mitsubishi Corp in Tokyo.
Reflecting the broad decline in commodities, the
Reuters-Jefferies benchmark index of commodity futures <.CRB>
fell on Tuesday to its lowest since February 2008.
On Tuesday, hedge fund Ospraie Management -- in which Lehman
Brothers <LEH.N> took a 20 percent stake in 2005 -- said it will
close its flagship fund after it plunged 27 percent in August on
losses in energy, mining and natural resources equity holdings,
making it in one of the biggest ever closures of a
commodities-focused hedge fund.
The FTSEurofirst 300 index <> fell 0.9 percent while
the MSCI main world equity index <.MIWD00000PUS> fell half a
percent, adding to a loss of 2.4 percent in August.
Lehman shares, traded in Frankfurt, were down 4.4 percent
<LHMH.F>.
Emerging stocks <.MSCIEF> fell 0.8 percent to their lowest
level since March 2007.
DOLLAR BENEFITS
The dollar <.DXY> was up half a percent against a basket of
major currencies after hitting the 11-month peak while the euro
hit a seven-month low of $1.4413 <EUR=>.
"The dollar tends to rally when equity volatility rises
globally. Periods of rising volatility often see peripheral
markets under performing... U.S. based investors are now taking
funds back home supporting the dollar," BNP Paribas said in a
note to clients.
Sterling extended its relentless decline with the
trade-weighted index hitting a 12-year low <=GBP> for an 8th
straight session and slumping to a 2-1/2 year low of $1.7703.
The British currency has been under pressure as a series of
weak data reinforced expectations that the economy is on the
brink of recession, fanning expectations of an interest rate cut
by the year end.
Adding to the evidence of a slowing economy, data showed
Australia's economy grew 0.3 percent in the second quarter, its
slowest pace in over three years, although it avoided
contraction like the euro zone and Japan had.
Emerging sovereign spreads <11EMJ> were steady to trade 307
basis points over U.S. Treasuries.
The September Bund future <FGBLU8> rose 42 ticks as
investors bought into safe-haven government bonds.
Gold <XAU=> slipped below $800 an ounce, tracking oil lower
to hit a session low of $794.10.
