* World stocks fall for second session, Nikkei hit
* Global outlook darkens, Japan factory output plunges
* Euro zone inflation nears decade low
* Dollar, yen rise; euro under pressure
(Updates prices, adds Wall Street outlook)
By Ian Chua
LONDON, Jan 30 (Reuters) - Mounting worries about a
deepening global recession dragged world stocks lower for a
second day on Friday, giving the low yielding Japanese yen and
U.S. dollar a boost.
Wall Street looked set for a shaky start after Thursday's
selloff with U.S. stock index futures <DJc1> <SPc1> <NDc1> all
down about 0.4 percent.
World stocks, as measured by MSCI's all-country index
<.MIWD00000PUS>, fell 1.1 percent, extending Thursday's
2-percent fall.
The FTSEurofirst 300 index <> of top European stocks
slipped 0.4 percent, with Germany's DAX <> down 1.4
percent and Britain's FTSE 100 <> down 0.7 percent.
Negative corporate news also soured sentiment.
Belgian-French financial services group Dexia <DEXI.BR>
estimated a record net loss for 2008 of 3 billion euros and
unveiled plans to axe 900 jobs this year.
Wall Street shares dived on Thursday after a report said
continuing claims for U.S. unemployment benefits hit a record
high, while Japanese stocks <> fell 3 percent on Friday
after the world's second biggest economy posted a record 9.6
percent drop in industrial production for December.
"It further underlines both the severity and synchronised
nature of the unfolding global downturn," said Richard McGuire,
fixed income strategist at RBC Capital Markets in London.
In Europe euro zone inflation plunged this month to its
lowest in almost 10 years to an annual rate of 1.1 percent, well
below the European Central Bank's target of below but close to 2
percent, giving the ECB room to cut interest rates again.
YEN, DOLLAR UP AGAIN
Growing market caution drove investors to dollar and yen
liquidity. The dollar <.DXY> rose 0.6 percent against a basket
of major currencies.
The euro fell 1.1 percent against the dollar to $1.2817
<EUR=> and the common currency was down 1.3 percent versus the
Japanese currency at 115.09 yen <EURJPY=>.
"We have fallen back into the well trodden path where weak
U.S. data drives the market only in regard to its impact on the
rest of the world, rather than what it might say about the state
of the U.S. economy," said Stuart Bennett, senior forex
strategist at Calyon.
"Hence, whilst the U.S. numbers disappoint, helping to push
equity markets lower, the FX market gets rattled and races
toward its favoured U.S. dollar and Japanese yen safe havens."
Eurogroup sources told Reuters the euro zone wanted the new
U.S. administration to cooperate more on foreign exchange policy
in the G7, sending a signal of unity that could reduce exchange
rate volatility, which is badly hurting firms.
The New Zealand dollar, once favoured by investors because
of its high yield, dropped to a six-year low of $0.5077 <NZD=D4>
after the country's central bank governor said interest rates
will probably have to be cut further, a day after they were
slashed by 150 basis points.
Weakness in global equity markets offered some support to
U.S. Treasuries. The yield on the benchmark 10-year note
<US10YT=RR>, which moves in the opposite direction of the price,
slipped 3 basis points on the day to 2.84 percent.
However, the yield was up around 60 basis points in January,
the biggest one-month rise since April 2004, with investors
concerned about the amount of new borrowing needed to finance
the government's rescue plans.
The 10-year euro zone government bond yield <EU10YT=RR> was
little changed on the day at 3.262 percent.
"From a bond market perspective, you're getting a confluence
of factors which is making life difficult given their
contradictory nature," RBC Capital Markets' McGuire said.
"On the one hand, you've got concerns over supply which is
causing indigestion across fixed-income markets ... but the data
backdrop still provides a very conducive context for fixed
income."
Optimism earlier this week after the U.S. Congress
progressed on a $825 billion stimulus spending package and other
efforts to ease the blow of the severe recession seemed to have
evaporated as the White House plan is expected to face
formidable opposition in the Senate.
(Additional reporting by Veronica Brown in LONDON and Kevin
Plumberg in HONG KONG; editing by Ian Jones)
