* World stock index drops 0.5 pct; Spain, Portugal down
* Euro hits one-year low against dollar, oil slips
(updates prices, adds quote)
By Carolyn Cohn
LONDON, May 5 (Reuters) - World stocks fell to eight-week
lows and the euro hit one-year troughs on Wednesday as fears
that Greece's debt crisis will spread to other weak euro zone
members drove investors to the safety of U.S. and German bonds.
Markets were clearly unimpressed with the 110 billion-euro
aid package agreed for Greece over the weekend by the European
Union and International Monetary Fund and are sceptical the
country can deliver on its promises of tough austerity measures.
Debt insurance costs for Portugal and Spain have continued
to rise while shares in Spain <> and Portugal <>, two
of the weaker euro zone members, fell 2 percent, the latter at
the lowest since July 2009.
The FTSEurofirst 300 <> index of leading European
shares pared losses slightly thanks to strong results by market
bellwethers like Societe Generale <SOGN.PA>.
But the sovereign debt fears eclipsed the corporate
earnings, keeping the index near two-month lows and down 0.4
percent on the day.
The euro, which suffered its steepest one-day loss since
last June on Tuesday, notched up another one-year low at $1.2928
according to Reuters data. <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."
The euro has fallen about 3 percent this week. It displayed
no response to upbeat services sector data that suggests the
euro area economic recovery has momentum. [].
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.
U.S. equities are poised to open lower, with S&P 500 futures
<SPc1> and the Nasdaq100 futures <NDc1> down 0.4 percent. The
Dow Jones industrial average futures <DJc1> eased 0.2 percent.
DOLLAR THE WINNER
Investors took shelter in the dollar and benchmark U.S. and
German government bonds.
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=>.
Two-year German Schatz yield hit a record low, while the
10-year German Bund yield touched the lowest since mid-January
2009. Benchmark Treasury yields were at the lowest in almost
three months.
"(Euro zone) periphery is widening so that's given a bid to
Bunds. There's absolutely no market in anything apart from
Germany," one bond trader said. "It's all about contagion fears
spreading in all the markets."
Oil extended losses towards $82 per barrel, 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.
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.
(Additional reporting by Neal Armstrong, editing by Mike
Peacock/Tony Austin)
