* FTSEurofirst 300 down 1.6 pct, MSCI world index up 0.4 pct
* Citi rescue optimism fades, economic gloom returns
* Rio, AXA weigh on European shares; yen firmer
By Natsuko Waki
LONDON, Nov 25 (Reuters) - European stocks fell more than 1
percent on Tuesday and the low-yielding yen rose broadly as
euphoria surrounding the U.S. rescue of Citigroup <C.N> gave way
to concerns about sharply deteriorating major economies.
Washington's announcement late on Sunday to shoulder most
losses on about $306 billion of Citi's risky assets and inject
new capital boosted world stocks by 6.6 percent on Monday.
However, investors were quick to take profits on stocks as
well as oil, worrying that more banks might be forced to seek
government help and that the rescue plan was unlikely to change
the fact that the world economy is slowing fast.
News that top global miner BHP Billiton <BLT.L> walked away
from its hostile offer for rival Rio Tinto <RIO.L> and major
insurer AXA <AXAF.PA> cut its 2008 underlying profit outlook
reminded investors of a tough environment facing corporates.
Furthermore, the World Bank said China's growth -- once seen
as the engine of the world economy -- could slow to 7.5 percent
in 2009, its slowest pace of expansion since 1990, due to the
intensifying impact of global financial turmoil.
"Given the scale of the rally in risk assets (on Monday)
investors are reassessing the situation and are less willing to
chase the rally higher," BTM-UFJ currency economist Lee Hardman
said.
"The underlying conditions are not conducive for further
gains...in risk assets, with below-trend growth across the globe
and financial markets in a severe state of distress."
The FTSEurofirst 300 index of leading European shares
<> fell 1.6 percent, after rallying nearly 9 percent on
Monday -- its second biggest one-day percentage rise on record.
Shares in Rio Tinto <RIO.L> fell 38 percent, with the basic
resource shares falling nearly 9 percent <.SXPP>. AXA shares
fell 13.5 percent.
A 3 percent rise in Asian stocks <.MIAPJ0000PUS> helped MSCI
world equity index <.MIWD00000PUS> post a 0.4 percent gain.
Emerging stocks <.MSCIEF> rose 2.2 percent.
U.S. crude oil <CLc1> fell 3.5 percent to $52.46 a barrel
after rising more than 9 percent on Monday.
The December bund futures <FGBLc1> rose 25 ticks as European
shares slipped. The low-yielding yen rose more than 1 percent to
95.81 per dollar <JPY=> while the dollar <.DXY> rose 0.5 percent
against a basket of major currencies.
U.S. data due later includes a preliminary reading for
third-quarter growth. The U.S. economy is expected to have
contracted 0.5 percent in the three months ending September.
Interest rate futures <FEDWATCH> are fully pricing in the
Federal Reserve to cut interest rates by half a point to 0.5
percent in December.
"Although we expect the Fed to lower its Fed fund target
rate to zero in January next year, the market has not fully
priced in the Fed's zero interest rate policy," JP Morgan said
in a note to clients.
"Therefore, any negative surprises from the U.S. releases
should heighten speculation for more aggressive Fed cuts."
(Additional reporting by Jessica Mortimer; Editing by
Victoria Main)
