* MSCI world equity index down 0.5 pct at 241.19
* Stocks slip, dollar hits lowest in almost 5 mths after Fed
* Oil off 6-month peak; dollar funding costs hit new lows
By Natsuko Waki
LONDON, May 21 (Reuters) - World stocks slipped from this
week's six-month peak and the dollar fell to its lowest in
almost five months on Thursday after the Federal Reserve lowered
its forecast of U.S. economic growth for the next three years.
Minutes from its April meeting showed the Fed projected the
world's biggest economy to contract by up to 2 percent this year
with the unemployment rate rising to as high as 9.6 percent.
They also showed that Fed policymakers had considered buying
more securities to spur recovery -- a move which would inject
more dollars into the market.
A disappointing 2009 outlook from Hewlett-Packard <HPQ.N>,
the world's biggest PC maker, also fanned concerns about
corporate profits in a slowing economy.
"There are concerns finally coming through about where the
underlying growth is going to come from," said Justin Urquhart
Stewart, investment director at Seven Investment Management.
"We need a growing level of demand. There's a certain amount
of restocking happening, and unfortunately the market has been
taking that as a sign of a recovery, which it is not."
MSCI world equity index <.MIWD00000PUS> fell 0.5 percent
after surging to levels last seen in early November on
Wednesday.
The FTSEurofirst 300 index <> fell 1 percent while
emerging stocks <.MSCIEF> fell half a percent.
The setback comes after an almost uninterrupted rally from
mid-March pushed the benchmark MSCI index up 42 percent.
U.S. crude oil <CLc1> -- whose prices are closely correlated
with growth expectations -- fell 0.5 percent to $61.75 a barrel
after hitting a six-month peak above $62 on Wednesday.
ENCOURAGING SIGNS
Despite the fall in risky assets, there have been signs that
the worst may be over for the global economy.
The euro zone's services and manufacturing sectors
contracted less than expected in May as firms saw the pace of
decline in new orders ease. Markit's euro zone flash services
purchasing managers' index rose to 44.7 in May from 43.8 last
month, beating the consensus estimate of 44.5.
In a further sign of easing tensions in money markets,
short-term dollar funding costs dropped further to fresh lows in
Asia. In Singapore, 3-month dollar costs <SIUSDD=ABSG> fell 4
basis points from Wednesday to 0.70917 percent, nearly half the
levels in March.
On Wednesday, the Volatility Index -- Wall Street's fear
gauge -- fell as low as 26.57 <.VIX> at one point, hitting its
lowest level since Sept. 15, when Lehman Brothers filed for
bankruptcy.
"Whilst it is encouraging that confidence may be returning,
it's dangerous to believe that the credit crunch is now over,
and we are heading back to the good old days," said Chris
Hossain, senior sales manager at ODL Securities.
The June bund futures <FGBLc1> was steady on the day.
The dollar <.DXY> fell 0.2 percent against a basket of major
currencies, having hit its lowest level since early January.
Sterling hit its highest level against the euro in 3-1/2
months at 87.23 per euro <EURGBP=> while against the dollar it
hit a six-month peak above $1.58 <GBP=>.
(Additional reporting by Sitaraman Shankar and Atul Prakash;
editing by David Stamp)
