* Global stocks extend fall on doubts over U.S. rescue plan
* MSCI world equity index down 0.6 pct at 314.00
* Eyes on Paulson, Bernanke testimony at 1330 GMT
(Updates prices, adds U.S. forecast)
By Ian Chua
LONDON, Sept 23 (Reuters) - Global stocks fell on Tuesday
and the dollar struggled, weighed down by investor worries about
political resistance to Washington's $700 billion bailout plan
and whether the deal will work.
Worries about delays as the Bush administration and Congress
haggle over details of the package paved the way for a negative
start on Wall Street as markets awaited U.S. Treasury Secretary
Henry Paulson's questioning by the Senate Banking Committee.
[]
Initial exuberance about the plan to buy up toxic mortgage
debt has given way to concerns about how the U.S. government
would fund it and whether the package would be enough to boost
the world's biggest economy, which is facing a recession.
"The focus does remain on the uncertainty surrounding the
U.S. bailout package, the details of it and how exactly the
final version will look. The recent developments in the U.S.
suggest the debating process will be longer than expected," said
David Powell, G10 FX strategist at Bank of America in London.
Nervous investors were also eyeing crude oil, which soared
nearly 16 percent in its biggest one-day gain ever on Monday due
to the expiry of the front-month futures contract and weakness
in the dollar.
But November crude oil futures <CLc1> fell $2.47 to below
$107 a barrel.
The FTSEurofirst 300 <> index of top European shares
shed 2.1 percent, extending Monday's 2.1 percent slide, while
Germany's DAX <> fell 0.8 percent.
This followed a decline of 2.2 percent for Asian equities
excluding Japan <.MIAPJ0000PUS>. Japanese financial markets were
closed for a holiday on Tuesday.
MSCI's world equity index <.MIWD00000PUS> shed 0.6 percent.
U.S. stock futures <SPc1><DJc1><NDc1> were all in the red.
"It'll take some months before people can have confidence
again in the financial system and in financial counterparties,"
said Hans-Juergen Delp, equity strategist at Commerzbank in
Frankfurt.
Safe haven government bonds benefited from weakness in
equities, pushing yields lower. The 10-year Bund yield
<EU10YT=RR> fell 3.2 basis points to 4.219 percent, while the
benchmark 10-year U.S. Treasury note yield <US10YT=RR> slid 6.1
basis points to 3.79 percent.
PRESSURE SEEN FOR DOLLAR
The dollar pared early gains versus the Japanese currency to
be up just 0.2 percent at 105.59 yen <JPY=>, while the euro
slipped 0.2 percent to $1.4761 <EUR=>, but was well off the
session low of $1.4681.
"While this bailout package does remove some of the systemic
risk from the U.S. financial system, it's also clear that the
potential rise in U.S. debt ratios and the effect on their
fiscal balance will hurt the dollar in the medium term," said
Dankse Bank currency strategist Kasper Kirkegaard.
More weakness in the euro zone economy was revealed by a
closely watched survey showing the services sector in Germany,
the region's biggest economy, edging into contraction in
September for the first time since January and manufacturing
industry slumping to its weakest performance in over five years.
However, all eyes are on Paulson and Federal Reserve
Chairman Ben Bernanke who will testify before the Senate Banking
Committee at 1330 GMT.
"The focus for the market will be on further details that
Paulson offers, if any, about the structure of the proposed fund
to purchase 'troubled assets'," said analysts at Barclays
Capital.
Major central banks around the world have been pumping cash
to improve interbank money markets, which practically seized up
last week following the collapse of Lehman Brothers.
While there have been signs of improved liquidity, tensions
remain high in the interbank money markets as financial
institutions stay wary of lending to one another.
The overnight dollar London Interbank offered rate (Libor)
was fixed at 2.95 percent on Tuesday, down a touch from around
2.97 percent on Monday and well off the high near 6.5 percent
set last week.
Many market participants remain shellshocked after the last
two extraordinary weeks in which Fannie Mae <FNM.N> and Freddie
Mac <FRE.N> were effectively nationalised, Washington bailed out
insurer American International Group <AIG.N> and Bank of America
<BAC.N> bought Merrill Lynch <MER.N>.
(Editing by Ruth Pitchford)
