* MSCI world equity index down 1.0 pct at 317.88
* Surprisingly weak U.S. jobs data adds to growth fears
* Stocks, European FX under pressure; yen, govt bonds gain
By Natsuko Waki
LONDON, Sept 5 (Reuters) - World stocks extended losses to
fresh two-year lows while save-haven government bonds rallied on
Friday after a surprisingly weak U.S. jobs report deepened
worries about the health of the global economy.
The U.S. unemployment rate shot up to 6.1 percent in August,
its highest in more than 4-1/2 years, while the economy lost a
higher-than-expected 84,000 jobs last month.
Interest rate futures moved to show a small chance the
Federal Reserve might cut rates later this year. U.S. stock
futures remained in the red <SPc1>, indicating a weaker opening
on Wall Street, which posted its steepest decline in more than
two months on Thursday.
"This is more convincing evidence that the economy is still
in trouble and investors are seeking safer places to park their
money," said Gary Thayer, senior economist at Wachovia
Securities in St Louis.
"We're also seeing weakness around the globe so there's less
reason for the Fed to focus on inflation and more reason to
focus on getting the economy back on its feet."
The FTSEurofirst 300 index <> fell 1.8 percent,
following even steeper moves in Asian stocks.
The MSCI main world equity index <.MIWD00000PUS> dropped 1.0
percent, having hit its lowest since July 2006. The index has
suffered six sessions of consecutive losses and already lost 5.6
percent since the start of the month.
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.
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 also
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.
"There is no prospect of an early end to the current
downwards trend," Commerzbank noted on the German economy. "Both
the much gloomier business sentiment and the very weak trend in
order intake lead us to expect production will continue to fall,
reflecting weak demand from abroad -- especially from other euro
area countries -- and the end of the domestic investment boom."
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> fell 0.5 percent against a basket of major
currencies. Still, 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 11 basis points
to trade 332 basis points above U.S. Treasuries. Emerging stocks
<.MSCIEF> lost 2.4 percent to fresh 17-month lows.
The September Bund future <FGBLU8> rose 73 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 0.4 percent to
$107.37 a barrel. Gold <XAU=> rose to $808.90.
