By Jeremy Gaunt, European Investment Correspondent
LONDON, Sept 30 (Reuters) - World stocks fell to near
three-year lows on Tuesday and investors moved into less risky
assets as disappointment over the rejection of a U.S. bank
rescue package swept from Wall Street to Asia and Europe.
European shares, however, trimmed early losses and U.S.
stock futures suggested gains on Wall Street later in the day,
possibly signalling some rethinking by investors about the
longer-term chances of support for the financial sector.
Oil also continued its recent tumble, falling to around $94
a barrel.
Angst over the battered financial sector continued with
Belgian-French financial services group Dexia <DEXI.BR> getting
a 6.4 billion euro ($9.18 billion) capital boost from public
shareholders to help it fight the global credit crisis.
European stocks fell as much as 2 percent in early trading
and Japan's Nikkei <> closed 4.12 percent lower.
The falls followed deep losses on Wall Street overnight in
the wake of Congress's failure to agree a $700 billion plan to
ease trouble in the financial industry.
The S&P 500 <.SPX>, for example, shed 8.79 percent.
"Markets, and especially credit markets, had expected a
strong signal from the authorities, and we didn't get it. The
domino effect of bank failures has started and is now spreading
to Europe," said Sebastien Barthelemi, analyst at Louis Capital
Markets.
"For a long time, we feared the systemic risks, now we're
watching the dominos collapse one after another. It's scary."
Globally, MSCI's main world stock index <.MIWD00000PUS>, a
benchmark for many leading investors, was down 1 percent, adding
to a 6.84 percent loss on Monday that saw the index's market
capitalization plunge $1.73 trillion.
The FTSEurofirst 300 index of top European shares <>
was down 1 percent, trimming some losses, having fallen 5.2
percent on Monday.
Banks <.SX7P> were taking most points off the European
benchmark index. Royal Bank of Scotland <RBS.L> fell 9.1
percent, Italy's UniCredit <CRDI.MI> was down 8.6 percent and
Swiss UBS <UBSN.VX> lost 3.7 percent.
European financials were hammered on Monday after British
mortgage lender Bradford & Bingley was partly nationalised,
Belgium, Netherlands and Luxembourg part-nationalised financial
group Fortis <FOR.AS> and the German government and the
country's banks teamed up to extend a last-minute credit line to
property lender Hypo Real Estate <HRXG.DE>.
Earlier on Tuesday, the Nikkei average hit a three-year
closing low, shedding 483.75 points to 11,259.86, the lowest
finish since June 2005. It earlier lost nearly 5 percent.
The broader Topix <> declined 3.6 percent to 1,087.41,
after tumbling more than 5 percent at one stage.
FLIGHT TO SAFETY
The dollar fell to a four-month low against the yen <JPY=>,
but later recovered to gain 0.6 percent to 104.73 yen. The euro
lost 0.4 percent to $1.4360 <EUR=>.
"The risk aversion story is getting worse and the dollar
will likely be supported, especially against the euro and
sterling," said Ian Stannard, senior foreign exchange strategist
at BNP Paribas.
Early gains on the euro zone government market were also
reversed.
Oil fell by more than $2.00 a barrel, extending losses after
slumping almost 10 percent in the previous session. U.S. light
crude for November delivery <CLc1> fell $2.07 to $94.29 a
barrel.
"It was a surprise that Congress rejected the bailout and
it's just reinforcing the belief that the U.S. economy is really
heading towards a downward spiral. That means the demand side of
the equation for oil will deteriorate rapidly," said Toby
Hassall, chief analyst at Commodity Warrants Australia in
Sydney.
