* MSCI world equity index up 0.1 percent at 338.04
* Investors dump oil, other commodities on slowdown fears
* Dollar hits seven-week high, Australian dollar slumps
By Natsuko Waki
LONDON, Aug 5 (Reuters) - Oil and commodity prices tumbled
on Tuesday as concerns grew that slowing global economic growth
could reduce demand, while easing inflation concerns and
better-than-expected European bank results lifted world shares.
The dollar hit a seven-week high against major currencies as
investors bet that easing inflation pressures would enable other
central banks to cut interest rates, narrowing yield
differentials in the U.S. currency's favour.
Benchmark oil prices fell to a three-month low below $119 a
barrel at one point, falling $28 from July's record highs.
Other commodity prices fell in tandem. Gold hit a six-week
low, platinum dropped to six-month troughs and soybeans hit
their weakest in three months.
"The sentiment is more bearish now than before as concern
over slower U.S. economic growth is (weighing on) demand," said
David Moore, commodity strategist at Commonwealth Bank of
Australia.
U.S. crude <CLc1> was down 1.5 percent at $119.54 a barrel.
Gold fell to $882.10 <XAU=>.
Tuesday's fall came after broader commodity prices <.CRB>
posted their biggest monthly drop in at least 10 years in July.
"The last commodity sell-off of this magnitude in March 1980
unfortunately did little to the severe 1980 and 1981/1982
recessions," Lehman Brothers said in a note to clients.
"Nonetheless, this commodity sell-off may help corral the
disconcerting inflation pulse of the past year and eventually
allow central banks the luxury of again easing to help stimulate
economic activity."
The market received fresh evidence that the economy is
slowing down.
The euro zone's dominant services sector slid further into
contraction in July, hitting a five-year low, while British
manufacturing output fell for a fourth consecutive month in June
and at the sharpest annual rate in 2-1/2 years.
MIXED EFFECT ON STOCKS
Tumbling commodities had a mixed effect on equities. While
commodity shares such as ArcelorMittal <MTP.PA> and BP <BP.L>
dropped, falling resource prices ease inflation pressures and
lessen the burden for corporates and consumers.
The FTSEurofirst 300 index <> managed to rise 2
percent on the day. It got a boost after Standard Chartered
<STAN.L> beat analysts' forecast with a 31 percent jump in
first-half profits as growth in Asia outpaced western economies.
Societe Generale <SOGN.PA> posted a 63 percent fall in
second-quarter net profit, smaller than many had feared.
MSCI main world equity index <.MIWD00000PUS> rose 0.1
percent on the day, having earlier hit a three-week low.
U.S. stock futures <SPc1> pointed to a firmer open on Wall
Street later.
The dollar was up 0.3 percent against a basket of major
currencies <.DXY> while the Australian dollar fell to a
four-month low of US$0.9178 <AUD=> after the country's central
bank opened the door for cutting interest rates.
The key event of the day is an interest rate decision by the
Federal Reserve. The Fed is likely to leave interest rates on
hold at 2.00 percent until December when investors expect the
central bank to hike the cost of borrowing <FEDWATCH>.
However, policymakers could decide to leave rates on hold
for longer given easing price pressures and slowing growth.
"The tug-of-war between upside risks to inflation and
downside risks to growth will persist in the coming quarters. In
our opinion the growth outlook will remain too troublesome to
allow the FOMC to hike interest rates anytime soon," Peter
Possing Andersen, senior analyst at Danske Bank, said in a note.
Emerging sovereign spreads <11EMJ> was unchanged while
emerging stocks <.MSCIEF> fell 0.9 percent.
The September Bund future <FGBLU8> rose 11 ticks on the day.
