* MSCI world equity index down 1.2 percent at 317.39
* Investors dump stocks, European FX on growth fears
* Yen, government bonds benefit from safe-haven flows
By Natsuko Waki
LONDON, Sept 5 (Reuters) - A wave of risk aversion hit
financial markets on Friday, pushing world stocks to their
lowest in more than two years and knocking European currencies
and oil as fears intensified about the global economic slowdown.
Safe-haven assets such as the yen and government bonds
benefited after Wall Street had its steepest decline in more
than two months as recent weak U.S. labour market data fanned
nervousness about a closely-watched monthly jobs report later in
the day.
Bank stocks took a hit after the European Central Bank
tightened rules on the assets banks can submit as collateral in
central bank lending operations following concern that its rules
have been open to misuse.
Risk aversion also hit emerging markets -- which have
already been under pressure in recent weeks on rising political
and economic risk -- with benchmark emerging stocks hitting a
17-month low.
"Global deleveraging remains the dominant theme in markets
as the economic and financial sector news continues to
disappoint," noted Mitul Kotecha, head of FX strategy at Calyon.
"The path of destruction that this deleveraging is causing
was evident in the slide in U.S. equities and subsequent decline
in Asian equity markets."
The FTSEurofirst 300 index <> fell 1.2 percent,
following even steeper moves in Asian stocks.
The MSCI main world equity index <.MIWD00000PUS> dropped 1.2
percent, hitting its lowest since July 2006. The index has made
six sessions of consecutive losses and already lost 5.6 percent
since the start of the month.
U.S. stock futures <SPc1> were pointing to a lower day on
Wall Street later. Data is expected to show that the U.S.
economy lost 75,000 non-farm jobs in August.
European banking shares <.SX7P> fell 1.7 percent. The ECB is
set to increase the safety margin it takes in valuing assets,
known as the haircut, to 12 percent across the board for all
asset-backed securities (ABS) which banks deposit with the ECB
to receive short-term funding and access payment systems.
Analysts say the changes would make it less attractive for
banks to use ABS as collateral and would push up the overall
cost of borrowing funds from the central bank.
WAVE OF RISK AVERSION
European currencies extended their recent decline on
concerns that economies outside the United States are
deteriorating, especially in Europe -- which is facing
recession.
Deepening such concerns, German industrial output fell by a
bigger-than-expected 1.8 percent in July, dipping for the fourth
time in five months.
The euro <EUR=> had fallen to a 11-month low below $1.42
while sterling hit a 12-year low on a trade-weighted basis
<=GBP>.
The low-yielding yen surged to a 13-month high around 150.60
per euro <EURJPY=R> while it hit two-year lows against the
Australian and New Zealand dollars.
The dollar <.DXY> rose 0.15 percent against a basket of
major currencies. The index is up nearly 9 percent in the third
quarter, on track for a biggest quarterly gain since the fourth
quarter of 1992.
Emerging sovereign spreads <11EMJ> widened 6 basis points to
trade 327 basis points above U.S. Treasuries. Emerging stocks
<.MSCIEF> lost 2.4 percent.
The September Bund future <FGBLU8> rose 45 ticks, benefiting
from flows into safe-haven government bonds.
Concerns that the slowing economy would hit energy demand
weighed on U.S. light crude <CLc1>, which fell 1.4 percent to
$106.40 a barrel. Gold <XAU=> ticked lower to $793.70 an ounce.
(Editing by Ron Askew)
