* World stock markets tumble
* Japan stocks down 9 percent, Europe 5.75 percent
* Britain in 50 bln pound bank bailout
* Demand for bonds, gold, low-yield FX jumps
By Jeremy Gaunt, European Investment Correspondent
LONDON, Oct 8 (Reuters) - Stock markets across the world
plunged on Wednesday as concerns about the worst financial
crisis in nearly 80 years and fears of a global recession
gripped investors despite government efforts to intervene.
MSCI's main benchmark index of world stocks <.MIWD00000PUS>
was at 4-year lows, down 3.5 percent, and its emerging market
stock counterpart <.MSCIEF> fell 7.3 percent.
The pan-European FTSEurofirst 300 index <> tumbled
5.75 percent and Tokyo's Nikkei share average <> plummeted
9.4 percent, the largest single-day percentage decline since
October 1987.
Government debt prices jumped as the equity selloff reached
fever pitch and investors snatched anything resembling
stability, such as gold which rose <XAU=> more than 2 percent
and the Japanese yen.
"The deteriorating outlook for the economy and the deepening
financial crisis are pushing fears to their limit," said
Mitsushige Akino, chief fund manager at Ichiyoshi Investment
Management in Japan.
The sharp market moves came despite efforts by various
authorities to inject calm and money into the battered financial
system.
Britain unveiled a multibillion pound rescue package for
British banks that included plans to inject up to 50 billion
pounds ($87.84 billion) of government money into the country's
biggest operators.
It was designed to offer banks short-term liquidity, make
new capital available and give the banking system enough funds
to maintain lending in the medium-term.
"This means they are sorting out all the refinancing
problems for 2009," said Emanuele Ravano, managing director of
fixed income firm Pimco Europe.
U.S. Federal Reserve Chairman Ben Bernanke, meanwhile,
warned on Tuesday that turmoil in markets could cause U.S.
economic activity to be subdued into 2009 and signalled a
readiness to cut interest rates.
Bernanke's sobering and candid tone about the likelihood of
rate cuts came days after European Central Bank President
Jean-Claude Trichet suggested last week the euro zone too could
cut rates.
The Bank of England delivers its latest rate decision on
Thursday and is expected to ease.
However, with the upcoming Group of Seven rich nations
meeting on Friday, investors have begun to look for coordinated
action to snuff out what has become a severe global threat.
HISTORIC LOSSES
The losses on stock markets this week have been huge.
MSCI's world index, a gauge which many investors use to
judge their performance has already lost 12 percent since
Friday's close and is on track for its worse week in the 20
years it has been in its current form.
The emerging market benchmark is in the same boat, losing 18
percent for the week to date.
The FTSEurofirst, meanwhile, was touching 5 year lows on
Wednesday.
"Obviously equities are not the flavour of the month to put
it mildly," said Peter Dixon, UK economist at Commerzbank.
In credit markets -- at the heart of the crisis because of a
freezing up of lending -- UK banks were standing out, with the
cost of insuring their debt against default falling sharply
after the government bail out.
But the Markit iTraxx Crossover index <ITEXO5Y=GF>, made up
of 50 mostly "junk"-rated European credits, was at 636 basis
points, according to data from Markit, 20 basis points wider
than late on Tuesday.
Money markets also showed no sign of thawing with the cost
of interbank borrowing staying way above official interest
rates.
Three-month dollar interbank rates were quoted as high as
6.00 percent on Reuters system <USD3MD=>. This compares with
market expectations that the Federal Reserve would cut interest
rates to at least 1.25 percent by January.
Euro rates for the same period stood at 5.35 percent on
Reuters system <EUR3MD=>, compared with the benchmark ECB rate
of 4.25 percent.
YEN JUMPS, YIELDS FALL
The low-yielding yen held onto gains after surging broadly
overnight as investors fled stocks and unwound carry trades
favouring higher-yielding currencies.
Sterling, however, got a boost after Britain's bank plan.
The yen was up more than 1 percent on the day against both
the dollar and euro. The euro was at 136.16 yen <EURJPY=> after
hitting a 3-year low of 135.02 yen. The dollar was at 99.9 yen
<JPY=>.
Sterling was up 0.3 percent at $1.7523 <GBP=>, and also
firmed against the euro at 77.86 pence <EURGBP=>.
"Investor risk aversion and selling of high-yielding
currencies are prominent," said Masafumi Yamanoto, head of
foreign exchange strategy for Japan at Royal Bank of Scotland.
Interest rate-sensitive two-year Schatz yield <EU2YT=RR> was
down 14 basis points at 3.035 percent.
(Editing by Victoria Main)
