* World stock markets tumble
* Japan stocks down 9 percent, Europe 3.7
* Wall Street set for losses
* 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
slumped 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.
Many investors were looking to central banks to come up with
concerted cuts in interest rates.
MSCI's main benchmark index of world stocks <.MIWD00000PUS>
was at around 4-year lows, down 2.7 percent, and its emerging
market stock counterpart <.MSCIEF> fell 7 percent.
Wall Street looked set for sharp losses at the open. The
pan-European FTSEurofirst 300 index <> tumbled 3.7
percent, off earlier lows, 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 2.5 percent
and the Japanese yen.
"There is somehow a disbelief in the ability of the system
to repair itself," said Mike Lenhoff, chief strategist at Brewin
Dolphin. "Certainly it's a very distressing situation we have
got into."
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.
RATE CUTS NEEDED?
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 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.
"Bernanke and Trichet have clearly opened the door to rate
cuts at any point via their recent speeches," Paul Mortimer-Lee,
economist at BNP Paribas, said in a note. "What we'd like to ask
central banks is: If not now, guys, then when?"
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 11.6 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
17.6 percent for the week to date.
The FTSEurofirst, meanwhile, was touched 5 year lows on
Wednesday before recovering slightly.
"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 634 basis
points, according to data from Markit, 19 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 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 surged across the board as investors
rushed to unwind riskier positions.
The yen hit a 6-month high against the dollar <JPY=> and a
3-year high against the euro <EURJPY=>, while higher-yielding
currencies such as the Australian dollar fell sharply against
the yen.
The dollar was down 1.6 percent at 99.65 yen, after hitting
a low of 98.62 yen, according to Reuters data. The euro was down
1.4 percent at 135.78 yen.
Interest rate-sensitive two-year Schatz yield <EU2YT=RR> was
down 22 basis points at 2.954 percent.
(Editing by Victoria Main)
