GLOBAL MARKETS-World stocks, euro drop as Greece worry mounts

                                
 * Greek crisis and contagion fears batter markets
                                
 * Global stocks fall, emerging markets lead the way
                                
 * Euro hits 14-month low against dollar before recovering
 (Updates prices, adds comment)
                                
 By Al Yoon
                                
 NEW YORK, May 6 (Reuters) - World shares tumbled and the
euro extended its slump on Thursday in what is shaping up to be
a major flight to safety on fears of contagion from the Greek
debt crisis.
                                
 Wall Street shares fell, following signs of soft U.S. store
sales and disappointment the European Central Bank offered no
new measures to ward off the region's sovereign debt troubles.
Investors sold corporate debt on worries the euro zone crisis
would hurt U.S. growth.
                                
 Emerging markets, many in reasonable economic shape and
relatively detached from euro zone stress, were particularly
hard hit, with shares <.MSCIEF> falling 2.1 percent as
investors shed riskier assets. In Spain, where investors fear
contagion is likely, stocks fell <.IBEX > nearly 3 percent.
                                
 "There's just a state of unease that continues to get worse
seemingly by the day as the contagion fear really becomes more
acute," said Craig Peckham, equity trading strategist at
Jefferies & Co. in New York.
                                
 MSCI's all-country world stock index <.MIWD00000PUS>
tumbled 1.5 percent to 291.81, its lowest since March 2.
                                
 In the United States, the Dow Jones industrial average
<.DJI> fell 85.17 points, or 0.78 percent, to 10,782.95. The
Standard & Poor's 500 Index <.SPX> lost 11.82 points, or 1.01
percent, to 1,154.08. The Nasdaq Composite Index <.IXIC> shed
27.33 points, or 1.14 percent, to 2,374.96.
                                
 Most top U.S. retail chains reported weaker-than-expected
same-store sales for April, sparking concerns about the health
of consumer spending. For details, see [ID:nN05176011]
                                
 Weak results hit shares including Costco Wholesale Corp
<COST.O>, which fell 3.1 percent to $58.51, while Gap Inc
<GPS.N> slumped 4 percent at $23.70.
                                
 Europe's FTSEurofirst 300 <.FTEU3> index sank 1.64 percent
to 1,006.66, with its fall softened as BNP Paribas <BNPP.PA>
beat expectations on first-quarter profit. Its chief executive
officer called scenarios for contagion of Greece's crisis
"unfounded" even as the French bank revealed a 5 billion euro
exposure to the country.
                                
 Japan's Nikkei <.N225> slumped 3.3 percent, catching up
with other bourses after a three-day holiday.
                                
 "The bull market always had to end somewhere, and it looks
like this could be the trigger," said Ben Potter, analyst at IG
Markets. "There's no let-up in concerns that the euro zone debt
crisis could continue to worsen and as a result equity markets
across the globe remain under pressure."
                                
 The focus was on the European Central Bank, which had been
expected to offer extra measures to ease a debt crisis that is
now piling pressure on Spain, Portugal and others.
                                
 Peter Cardillo, chief market economist at Avalon Partners
in New York, said the ECB's decision to keep monetary policy
unchanged was not surprising, but "with the euro collapsing,
investors wanted to see some sort of a defensive movement."
                                
 EURO WOE
                                
 The euro tumbled to a 14-month low bid of 1.2652 against
the dollar, and was recently trading <EUR=> down 0.66 percent
at $1.2727.
                                
 European policymakers have warned the euro's survival
depends on a life-support package for Greece agreed last
weekend. This has ratcheted up risk aversion and boosted
safe-haven demand for the dollar, pushing it to a one-year high
versus a basket of major currencies.
                                
 The U.S. Dollar Index <.DXY> climbed 0.51 percent to 84.51.
Against the Japanese yen, the dollar <JPY=> fell 1.34 percent
to 92.61.
                                
 Core euro zone and U.S. government bond yields drew support
from investors seeking a haven from the Greece debt crisis.
                                
 Ten-year euro zone government debt yields <EU10YT=RR>
declined 0.07 percentage point to 2.80 percent, and benchmark
U.S. Treasury note yields <US10YT=RR> fell to 3.49 percent from
3.55 percent.
                                
 Risk premiums as measured in a benchmark index of
investment-grade U.S. corporate debt have risen almost 0.2
percentage point since early Monday, to 1.11 percentage
points.
                                
 U.S. light sweet crude oil <CLc1> fell 1 percent to $79.17
per barrel, and spot gold <XAU=> rose $18.35, or 1.56 percent,
to $1192.50.
 (Additional reporting by Naomi Tajitsu in London and Angela
Moon and Leah Schnurr in New York; Editing by Kenneth Barry)