GLOBAL MARKETS-World stocks hit 2-wk low; sterling skids

                                
* MSCI world equity index down 1.2 percent at 212.52
                                
 * Sterling below $1.49 and at 12-year low on TWI
                                
 * Short-dated government bonds rally, yields tumble
                                
 
                                
 By Natsuko Waki
                                
 LONDON, Nov 13 (Reuters) - World stocks fell to a two-week
low on Thursday after Washington backed away from its plan to
buy toxic assets, while sterling hit fresh 12-year lows a day
after the Bank of England warned of a sharp economic slowdown.
                                
 Oil hit a 22-month low below $55 a barrel before it regained
poise. Short-term European government bond yields fell to a
three-year low as data showing Germany had slipped into 
recession spurred appetite for safer government bonds.
                                
 The Bush administration largely abandoned its plan to buy up
toxic mortgage assets and it will focus its $700 billion
financial bailout fund on making direct investments in financial
institutions and shoring up consumer credit markets.
                                
 This, combined with a dismal forecast from Best Buy <BBY.N>
and a revenue warning from Intel <INTC.O>, weighed on Asian and
European shares.
                                
 "This is a case study of a massive deflationary economic
situation that is building up. There is no doubt we are entering
into a recession and it could be pretty nasty and deep," said
Valerie Plagnol, chief strategist at CM-CIC Securities in Paris.
The MSCI world equity index <.MIWD00000PUS> fell 1.2
percent, approaching October's five-year lows, while the
FTSEurofirst 300 index <.FTEU3> fell 0.7 percent. U.S. stock
futures pointed to a firmer open on Wall Street later.
                                
 Sterling fell as low as $1.4807 <GBP=>, its lowest in 6-1/2
years and 82.0 <=GBP> on a trade-weighted basis. It also hit a
record low of 84.56 pence per euro <EURGBP=>. The dollar <.DXY>
fell 0.6 percent against a basket of major currencies.
                                
 The Bank of England said in a quarterly inflation report on
Wednesday that the economy was likely to contract further next
year and inflation could fall below 1 percent in two years.
                                
 Investors expect the BoE to follow up November's shock 1.5
point interest rate cut next month with another half a point
reduction as it tries to drag Britain out of recession. The cost
of borrowing now stands at 3 percent.
                                
 Emerging stocks <.MSCIEF> fell 2.5 percent, having earlier
hit a two-week low. Russian stocks have lost more than $1
trillion in value since early May.
                                
 After hitting a four-year low in October, emerging stocks
outpaced developed counterparts in recovering. However, that
speedy rebound seems to be unwinding equally fast.
                                
 "We now expect the relative momentum to ease and that the
risk reward for holding emerging long and the world short be far
less attractive as market conditions once again are
deteriorating," SEB said in a note to clients.
                                
 U.S. crude oil <CLc1> fell below $55 a barrel as worries
grew that a global recession would sap energy demand, before it
recovered towards $57.
                                
 The December bund future <FGBLc1> was steady on the day
while the two-year euro zone government bond yield fell to a
three-year low of 2.23 percent <EU2YT=RR>.
                                
 (Additional reporting by Atul Prakash; Editing by Toby
Chopra)