* World stocks falter <.MIWD00000PUS>
* China cuts interest rates by 108 bps
* EU proposes fiscal stimulus after Fed's $800 bln plan
* Investors concerned about cost of stimulus packages
(Adds quotes, updates prices)
By Veronica Brown
LONDON, Nov 26 (Reuters) - World stocks struggled on
Wednesday, with European and Japanese markets falling, while the
low-yielding Japanese yen rose as investors weighed the cost of
global fiscal stimulus packages to boost flagging economies.
Wall Street looked set for a poor opening.
The European Commission proposed a 200 billion euro stimulus
package aimed at giving the floundering economy a boost,
following the U.S. Federal Reserve's $800 billion effort to
bolster credit and mortgage markets.
China also cut interest rates by 108 basis points, a move
aimed at ensuring liquidity in the banking system and supporting
economic growth.
But positive reaction to the financial resuscitation efforts
battled with concern about the bottom-line impact on government
balance sheets.
"The stimulus packages are a first step and are welcome, but
the fundamentals across the world are still negative and
recession fears are not fading," said Antje Prafcke, currency
strategist at CBCM in Frankfurt.
"There are still concerns about whether the measures will
work and how they will be financed," she added.
Real economy malaise continued to deter risk-taking. Toyota
Motor Corp <7203.T> had its top-notch credit rating cut for the
first time in a decade. []
World stocks as measured by the MSCI index were 0.5 lower
<.MIWD00000PUS>, while European stocks dropped 1.5 percent
<>. Tokyo's Nikkei 225 index earlier fell 1.3 percent
<>.
Oil shares lead European stocks lower despite a modest
pickup in crude prices <CLc1>, adding to a general air of
deflating sentiment as investors wondered what it would take to
get interbank markets working properly again.
"You can't force banks to lend if they don't want to.
Earnings worries are still there," said Bernard McAlinden,
investment strategist at NCB Stockbrokers in Dublin.
Interbank lending rate ranges for three-month dollar, euro
and sterling funds held relatively steady versus a day ago,
while spreads between interbank and expected policy rates stayed
at high levels [].
YEN STILL FAVOURED
Bond investors paid record premiums to insure against a U.S.
default on its Treasury debt. While still small compared with
premiums for smaller economies' government bonds, the widening
in U.S. credit default swap spreads showed nagging worries about
the unprecedented scale of the bailouts. []
Scepticism about the Fed's and other stimulative packages
kept investors' preference for the yen intact.
The low-yielding Japanese unit, a bellwether of attitudes
towards risk, stayed firm versus the euro <EURJPY=> at 123.33
yen, but gains were trimmed after the China rate cut. Aversion
to riskier positions also kept the dollar well-supported against
a basket of currencies <.DXY> and the euro <EUR=>.
While most analysts expected the yen's outperformance to
continue in the face of the crisis, others said rapidly changing
monetary policy could hamper its rally.
"The China rate cut reinforces the notion of global
coordinated action to counter the downside risks to the global
economy, which will erode the attraction of the yen safe haven
quality," said Lena Komileva, G7 market economist at Tullett
Prebon.
Looking ahead, investors braced for U.S. economic data,
including the Chicago PMI at 1445 GMT and the reading of
consumer sentiment. <ECONUS>
The release of the figures was brought forward ahead of the
U.S. Thanksgiving holiday on Thursday.
