* MSCI world equity index falls 0.7 percent to 207.15
* Financial sector concerns, shock Japan data weigh
* Euro falls; government bonds firmer
By Natsuko Waki
LONDON, Feb 16 (Reuters) - World stocks and the euro fell on
Monday while safer government bonds rose as dismal Japanese
growth data and fresh concerns about the financial sector fanned
worries about the deteriorating global economy.
Data showed Japan's economy sank deeper into recession with
its worst quarterly contraction in 35 years, weighing on risky
assets and supporting safer instruments such as bonds and the
yen.
Financial shares were one of the underperforming sectors in
Europe after part-nationalised Lloyds Banking Group <LLOY.L>
said on Friday its HBOS unit made a hefty loss last year,
causing its shares to fall by a third. Lloyds erased early
losses on Monday however to trade almost flat on the day.
At a weekend meeting in Rome, G7 finance ministers and
central bankers said they would do all they could do to fight
recession but their statement lacked specifics to tackle the
worst financial crisis in 80 years.
"The Japanese economic (data) provides the backdrop today
and there are persistent concerns about financials after
Friday's events (at Lloyds)," said Jonathan Lawlor, senior
analyst at Fox-Pitt, Kelton.
World stocks, measured by MSCI <.MIWD00000PUS>, fell 0.7
percent. The FTSEurofirst 300 index of leading European shares
<> lost 0.8 percent. U.S. markets are closed for a
national holiday.
Legal & General <LGEN.L> fell as much as 22 percent to a
10-year low before trimming losses after the Financial Times
reported that the life insurer was in talks with the Financial
Services Authority about the amount of money it should set aside
to cover defaults in its bond portfolio. L&G said it was not
involved in any exceptional talk with the regulators.
The euro fell a quarter percent to $1.2755 <EUR=>.
U.S. crude oil <CLc1> rose half a percent to $37.68 a
barrel.
Euro zone government bonds rose, helped by funds seeking
less riskier investment and bids by investors betting on a euro
zone interest rate cut next month.
Two-year euro zone government bond <EU2YT=RR> yields fell as
low as 1.246 percent, their lowest since the euro's 1999 launch.
The March bund futures <FGBLc1> rose 48 ticks.
In a further sign of risk aversion, the cost of protecting
U.S., Belgian and Slovak government debt against default rose to
record highs, according to monitor CMA DataVision.
BACK TO SQUARE ONE
G7 financial chiefs made no specific reference to the yen's
strength or sterling's weakness -- two currencies which
investors had speculated could be included in the statement.
The yen was down 0.1 percent at 91.79 per dollar <JPY=>.
Sterling rose 0.3 percent to $1.4262 <GBP=>.
The dollar <.DXY> hit a two-month high against a basket of
major currencies, up 0.7 percent on the day.
"There was nothing controversial in the G7 statement, so it
is very much back to square one for the currency market now,"
Brown Brothers Harriman said in a note to clients.
"The main themes still relate to de-leveraging and to trying
to assess which country is proving more aggressive or efficient
in trying to tackle the financial market crisis. Here, we
believe that the greenback will remain a winner."
(Additional reporting by Brian Gorman)
