* World stock index drops 0.5 pct; Spain, Portugal down
* Euro hits one-year low against dollar, oil slips
By Carolyn Cohn
LONDON, May 5 (Reuters) - World stocks fell to eight-week
lows and the euro hit a one-year trough on Wednesday as
investors fretted that a debt crisis would spread to other euro
zone countries, following a massive bail-out for Greece.
The European Union and International Monetary Fund agreed a
110 billion euro aid package for Greece at the weekend, but the
promise has failed to calm markets.
Shares in Spain <> and Portugal <>, two of the
weaker euro zone members, fell 2 percent, and the FTSEurofirst
300 <> index of leading European shares dropped 0.75
percent to two-month lows.
The euro, which suffered its steepest one-day loss since
last June on Tuesday, notched up another one-year low at $1.2936
<EUR=>.
In Athens, striking public sector workers challenged
Greece's bailout-for-austerity deal, while policymakers,
including IMF chief Dominique Strauss-Kahn and the European
Central Bank's Axel Weber, warned of the dangers of contagion to
other high-debt euro zone nations. []
"The questionable way the Greek crisis has been handled and
concerns about the peripherals are weighing on sentiment. I
expect euro weakness to remain in place," said Kenneth Broux,
market economist at Lloyds Banking Group.
"I see $1.25 as the next big (euro) level on the downside,"
he said.
World stocks as measured by MSCI <.MIWD00000PUS> fell half a
percent to their lowest since early March, while the more
volatile emerging equities index <.MSCIEF> fell 1.5 percent.
Asian markets also weakened. Shanghai's key index <>
fell as much as 2 percent to its lowest in seven months,
suffering from Beijing's weekend moves to tighten policy.
DOLLAR THE WINNER
Investors found harbour in the dollar. The dollar index was
steady <.DXY> after gaining 1.4 percent on Tuesday, its biggest
daily gain this year, and the U.S. currency tested eight-month
highs against the yen near 95 <JPY=>.
Oil extended losses towards $82, following the steepest
one-day percentage loss in three months on Tuesday, on rising
inventories and a firm dollar. []
Gold <XAU=> also came under pressure as the dollar
strengthened.
The 10-year Bund future <FGBLc1> rose to its highest level
since March 2009, also on safety flows.
Portuguese debt insurance costs rose to 360.7 basis points
in the five-year credit default swap market, one of the highest
levels in Europe, according to CDS monitor CMA DataVision.
Spanish 5-year CDS edged up to 211.8 bps.
"The contagion in Europe is a worry. After getting a bigger
bail-out and agreement on austerity measures with the Greek
government, the market is still heading for the exit on euro
zone periphery debt," said analysts at RBS in a client note.
"The question has to be asked whether the European
authorities can stop this from snowballing."
(Additional reporting by Neal Armstrong, editing by Mike
Peacock)
