* MSCI world equity index down 0.6 pct at 240.47
* Western govt debt fears knock U.S., euro zone bonds
* Dollar gains vs yen after Moody's affirms U.S. rating
By Natsuko Waki
LONDON, May 28 (Reuters) - Global shares fell from recent
2009 highs on Thursday while government bonds tumbled around the
world, dragged down by investor concern about mounting Western
government debt.
The benchmark 10-year Treasury note yield <US10YT=RR> hit a
six-month high on Wednesday after fears grew that the United
States is taking on huge debt to revive economic demand against
a background of a record budget deficit.
Government bonds in the euro zone and Japan also fell,
fanning concerns that rising yields would push up borrowing
costs for businesses and consumers, choking off a potential
economic recovery.
"Bond yields are rising from extremely depressed levels, and
they show that expectations for the economy are improving," said
Bernard McAlinden, investment strategist at NCB Stockbrokers, in
Dublin.
"People are worried about inflation with all the money
that's being pumped into the system. That could nip the economic
recovery in the bud."
The MSCI world equity index <.MIWD00000PUS> fell 0.6
percent, off the six-month high hit on May 20, while the
FTSEurofirst 300 index <> of pan-European blue-chip shares
eased 1.3 percent.
U.S. stock futures were up around 0.3 percent <SPc1>,
pointing to a firmer open on Wall Street later.
Emerging stocks <.MSCIEF> proved more resilient with a gain
of 0.2 percent, clinging onto recent gains that have taken them
to seven-month highs.
Emerging market debt spreads <11EMJ> widened 7 bps, hovering
at October levels of 447 bps over Treasuries.
The dollar rose 1.7 percent to 96.92 yen <JPY=> after
ratings agency Moody's affirmed its triple-A credit rating on
the United States.
But the agency also warned that the rating would come under
pressure if Washington failed to reduce debt levels.
Against a basket of major currencies, the dollar was steady
<.DXY>, off a 4-1/2 month low set last week.
U.S. crude oil <CLc1> stayed near its six-month highs,
peeking above $63 a barrel, helped by data from the American
Petroleum Institute showing a larger-than-expected drawdown in
crude stocks last week.
After hitting 3.74 percent on Wednesday, the 10-year U.S.
Treasury yield ticked lower to 3.682 percent <US10YT=RR>. The
June bund future <FGBLc1> fell 36 ticks with the 10-year euro
zone yield trading at 3.665 percent <EU10YT=RR>.
The benchmark 10-year Japanese government bond
<JP10YTN=JBTC> yield rose to a six-month peak of 1.5 percent.
Short-term notes traded firmer, pressuring the yield, thanks
to the Bank of Japan's easy monetary policy under which it buys
commercial paper and corporate bonds from banks.
"Over the past week, the fixed income market has moved from
mirroring developments in stocks, to taking the driving seat and
conditioning the price action in other markets," Goldman Sachs
said in a note to clients.
"We hold the view that the rates market has now priced in
more than enough the improvement in growth indicators."
(Additional reporting by Brian Gorman; Editing by Toby Chopra)
