* Risk assets jettisoned as recession worries mount
* Global stocks fall 1 pct after a two-day rally fizzles
* Gold, bonds, yen rise, oil hits new one-year low
(Adds quotes, updates prices, changes byline)
By Veronica Brown
LONDON, Oct 15 (Reuters) - Risk aversion wrestled stock
markets down on Wednesday, snuffing out a two-day rally as
investors returned to last week's rattled state even after
government bank bailouts took the edge off money market stress.
The yen and gold prices rose, while government bonds also
climbed in a fresh bid to unload risk on the reality of
recession despite trillions of dollars pledged to recapitalise
banks and stem the worst financial crisis since the 1930s.
The FTSEurofirst 300 index <> of top leading shares
fell 2.6 percent, while Germany's DAX <> and Britain's
FTSE <> both shed more than 2 percent.
MSCI's main world stock index <.MIWD00000PUS> was down more
than 1 percent, as the two-day rebound from a five-year low
fizzled.
"After the colossal gains achieved at the start of this
week, it would seem that the hangover has kicked in and
investors have sobered to the reality that recession is here,"
said Andrew Turnbull, senior sales manager at ODL Securities.
The recessionary fear was also reflected in MSCI's measure
of Asian stock markets excluding Japan <.MIAPJ0000PUS>, which
slid 3.3 percent. Japan's Nikkei <>, however, rose 1.1
percent after spending most of the session in negative
territory.
U.S. stock futures pointed to a weaker Wall Street open, but
pared losses after JP Morgan reported Q3 net income equating to
$0.11 per share and reported net markdowns of $3.6 billion
[].
REAL ECONOMY BITES
Governments around the world have announced plans to rescue
their banking sectors and kick-start interbank lending, with the
United States on Tuesday saying it would inject $250 billion
into its banks, including the nation's top nine lenders.
But analysts say now the fears of an imminent financial
meltdown have given way to economic worries, taking risk-averse
investors back to the yen, which saw a stunning rise last week
as panic descended ahead of the bailouts and coordinated central
bank rate cuts.
"Governments have done as much as they can to deal with the
banking crisis. The fires have been put out for now, so panic
buying in the yen that we saw last week has subsided," said
Kikuko Takeda, senior currency economist at BTM UFJ.
"But with European shares falling today, it's not surprising
that yen support is continuing," she said, adding that more bad
news about the banking sector would be seen as a cue to buy more
yen.
The dollar <JPY=> fell 0.7 percent to 101.43 yen, retreating
further from around 103 yen hit on Tuesday and keeping the pair
within range of 97.88 yen hit last week for the first time since
mid-March, according to Reuters data.
The dollar stayed weak after Federal Reserve Bank of San
Francisco Janet Yellen on Tuesday said the economy "appears to
be in a recession" [].
A raft of economic figures due later in the day may support
that view. The Federal Reserve will release its Beige Book
summary of economic conditions at 1800 GMT. Before that sees the
New York Fed's manufacturing poll for October, as well as
figures for retail sales and wholesale prices.
The euro <EURJPY=R> fell 0.4 percent to 138.64 yen. The
single currency <EUR=> was up 0.3 percent against the dollar at
$1.3668.
MONEY MARKETS HEALING
Still, measures by governments and central banks aimed at
restoring confidence between banks appeared to be helping to
kick-start the healing process in money markets, which had
gummed up after the collapse of Lehman Brothers last month.
The interbank cost of borrowing dollars, euros and sterling
fell across all maturities, the latest daily fixing from the
British Bankers' Association showed [].
"The rescue packages around the world have laid the
foundation for market confidence to return. However, experience
has shown that confidence recovers only slowly," said
Commerzbank analyst Antje Praefcke.
Weakness in equity markets helped fuel demand for government
bonds, driving yields lower. The euro zone 10-year bond yield
<EU10YT=RR> slipped more than 2 basis points to 4.111 percent,
while the U.S. 10-year yield <US10YT=RR> eased 6.8 basis points
to 4.0169 percent.
Meanwhile, U.S. crude <CLc1> plumbed a fresh one-year low of
$76.05 a barrel, weighed by worries that a global recession
would hurt demand.
Demand for gold, however, was firm, helping push the
precious metal up more than 1 percent to $846.35 an ounce.
(Additional reporting by Atul Prakash, Naomi Tajitsu and Ian
Chua; Editing by Victoria Main)
