* Global stocks fall as Shanghai tumbles 6 pct
* Historic Japan opposition win boosts yen
* Oil down on doubts about Chinese economy
By David Stamp
LONDON, Aug 31 (Reuters) - Global stocks fell on Monday,
dragged down by a six percent tumble in China which sent nervous
investors into the yen, while an historic opposition victory in
Japanese elections also gave the currency a boost.
Chinese share trading is largely cut off from global markets
but the big drop in Shanghai still had a psychological knock-on.
Investors nervous about whether the major economies can pull
convincingly out of recession, helped by China, shied away from
risk and opted for the perceived safety of the yen and
government bonds.
MSCI's <.MIWD00000PUS> all-country world stock index was
down 0.46 percent at 276.17 points at 0906 GMT in a market
subdued by a public holiday in Britain, while the FTSEurofirst
300 <> index of top European shares was down 0.26 percent
at 975.78 points after reaching a 10-month high on Friday.
"The drop in China does have an impact and there is further
downside potential in those overvalued stocks," said
Giuseppe-Guido Amato, strategist at Lang & Schwarz.
Shanghai stocks <> fell 6.7 percent and the index
dropped below the 125-day moving average, which many domestic
investors believe is the dividing line between bear and bull
markets. []
Foreign investment on the Chinese stock market is limited,
leaving trading largely to domestic players. Nevertheless,
global investors decided to play safe after strong gains in
recent months. For instance, the FTSEurofirst 300, which plunged
45 percent in 2008, is up 17 percent this year and about 50
percent from a lifetime low in early March.
In Tokyo, the Nikkei average fell as the stronger yen and
tumbling Shanghai stocks helped to erase a jump to an 11-month
high after the election results.
Sunday's landslide victory for Yukio Hatoyama's Democrats
ends a half-century of almost unbroken rule by the Liberal
Democratic Party and breaks parliamentary deadlock. []
For a graphic on the Japanese election results, click on:
http://graphics.thomsonreuters.com/089/JP_PLTC0809.gif
However, the market was struggling to interpret the results.
"Uncertainty remains on what kinds of policies the Democrats
will take and what kind of impact they will have," said
Mitsushige Akino, chief fund manager at Ichiyoshi Investment
Management. "The market will likely take a wait-and-see approach
for about a month after the new government takes power as no one
knows where it will take us."
The Nikkei lost 0.4 percent or 41.61 points to 10,492.53
after bouncing briefly to an 11-month high of 10,767.00.
YEN RISES BROADLY
The yen rose broadly, hitting a seven-week high against the
dollar. Currency investors hoped that new policies in Japan will
support consumer spending in an economy trapped in deflation and
haunted by a weak growth outlook.
"Risk aversion due to the falls in the Shanghai stock index
and relief at the lack of uncertainty in the Japanese election
result have lifted the yen," Commerzbank currency strategist in
Frankfurt Antje Praefcke said.
At 0807 GMT, the dollar was 0.9 percent lower at 92.80 yen
<JPY=>, hovering just above an earlier low of 92.54 yen hit on
trading platform EBS, its weakest level since mid-July.
The euro fell 1 percent against the yen to 132.46 yen
<EURJPY=R>, while it dipped 0.1 percent against the dollar to
$1.4277 <EUR=>.
Risk aversion also helped government bonds. Ten-year Bunds
yielded 3.226 percent <EU10YT=RR>, about one basis point less
than in late Friday trade.
Oil fell below $72 a barrel due to worries about the pace of
economic recovery and a revival in energy demand. "I'm sure that
weaker stock markets are feeding through into lower oil prices.
It could indicate weaker demand from China," said Christopher
Bellew, a broker at Bache Commodities in London.
U.S. crude for October <CLc1> fell $1.09 to $71.65 a barrel
by 0843 GMT. London Brent crude <LCOc1> fell $1.16 to $71.63.
"The sharp drop in Chinese markets is causing concerns and
is inevitably making some investors rethink the risks to China's
economy and question their assumptions on the country's growth
rate and energy consumption," said Daniel Liu, a commodities
strategist at MG Global Singapore.
