* MSCI World stock index falls 3 pct
* European shares fall sharply after U.S. and Japan tumble
* Citi, Merrill post big losses; Nokia outlook soothes
* Oil hits 13-month low on demand fears
By Sitaraman Shankar
LONDON, Oct 16 (Reuters) - Shares across the world fell for
the second straight day on Thursday, pummelled by signs the
world's biggest economies were headed for recession after a
month of financial sector turmoil.
European stocks fell 3 percent by midday after Wall Street
and Japan's Nikkei both suffered their worst one-day losses
since the stock market crash of 1987, and the MSCI World stock
index <.MIWD00000PUS> traded 3 percent lower.
U.S. stock index futures <NDc1> <SPc1> <DJc1> were up 1
percent higher, suggesting a pause in the haemorrhaging even as
Citigroup <C.N> and Merrill Lynch <MER.N> posted big third
quarter losses.
Oil fell $1.70 a barrel, trading at less than half the
record high of $147 a barrel it hit in July, as fears of a sharp
fall in demand took grip, and the dollar gained as risk-weary
investors sold higher yielding currencies, unwinding carry
trades.
Sharp equity gains on the first two days of the week were
quickly forgotten after dismal U.S. retail sales and the Beige
Book report underlined concerns about the economy. Federal
Reserve Chairman Ben Bernanke said it faced a "significant
threat" from credit markets.
"The whole cliche of Wall Street arriving on Main Street is
so true now, with recession in the U.S., the UK, Europe and
probably Japan, and significant slowing elsewhere," said Bernard
McAlinden, strategist at NCB Stockbrokers in Dublin.
"Things have rapidly changed on the real economy and that
has implications for earnings," he said.
Handset maker and technology bellwether Nokia <NOK1V.HE>,
eyed for clues as to how a global financial crisis has hit
consumer spending, posted results that were below analyst
expectations. But its outlook soothed worried investors.
Bank bailouts by governments across the world and a
concerted rate cut last week have helped started to unfreeze
money markets, and Switzerland moved on Thursday to provide its
two top banks -- Credit Suisse <CSGN.VX> and UBS <UBSN.VX> --
with billions of francs in emergency funding.
But any optimism about the stabilisation in money markets
has been swept aside, and reports are trickling in about sharp
losses at hedge funds.
"I think today there is just a combination of uncertainty
and deleveraging in the market," said Amar Gill, head of
thematic research at CLSA in Singapore.
"International funds are pulling back and putting their
money into whatever is safest: Treasuries or cash or paying off
existing debt," he said.
Citadel Investment Group, one of the world's largest hedge
funds, said September was the single worst month in the history
of the company and warned of more volatility in weeks to come.
[]
STEEP LOSSES
The credit market crisis that piled up losses at banks,
froze interbank lending and slowed the economy, has taken the
MSCI World index down 43 percent this year.
Benchmark emerging equities <.MSCIEF> plunged 7 percent to
their lowest since July 2005, and emerging sovereign debt
spreads widened by 7 basis points to 587 basis points over U.S.
Treasuries <11EMJ>.
Ratings agency Standard & Poor's raised concerns over
Ukraine, Hungary and Russia and Iceland's crown currency
remained untraded internationally more than a week after its
banking sector collapsed.
U.S. Treasury yields rose on Thursday on worries that the
United States will have to boost debt issuance to help fund the
government's massive bank rescue plan.
The 10-year government bonds <US10YT=RR> yielded 4.0091
percent, up 6 basis points on the day.
The extent of recent equity falls has prompted talk of more
rate cuts from the world's central banks.
"People said interest rates don't matter because credit
markets are not working. Well, interest rates do matter because
the economy is not working," said NCB's McAlinden, adding that
he expected the Fed to cut later this month.
Fed fund futures show a 46 percent chance of a 50 basis
point cut and a 54 percent chance of a 25 basis point cut.
(Additional reporting by Kevin Plumberg in Hong Kong and Peter
Apps in London; Editing by Ron Askew)
