* MSCI World stocks down 0.41 pct, EM down 0.38 pct
* Euro finds support from short covering
* Wall Street set to open lower, seen down 0.6 pct
* FTSEurofirst down 2.20 pct, energy, banks lead losses
By Claire Milhench
LONDON, May 21 (Reuters) - European stocks fell again on
Friday despite German approval of a euro zone rescue package, as
markets remained unconvinced the aid would resolve the debt
crisis.
The euro, however, found support from short covering.
Wall Street was also set to open lower, after plunging
nearly 4 percent in the previous session.
In the general flight to safety bund futures <FGBLc1>
extended their gains, up 28 ticks on the day to 128.59, with the
German 10-year government bond yield <EU10YT=RR> hitting a
record low at 2.656 percent.
"We are heading into the U.S. session here and the markets
want to be better bid. The market is just anticipating more risk
aversion trades ... People are still shedding risk and risk
assets," a bond trader said.
World stocks as measured by the MSCI All-Country index
<.MIWD00000PUS> were down 0.41 percent, with the more volatile
emerging markets component <.MSCIEF> down 0.38 percent.
The euro continued to benefit from hedge funds scrambling to
cover short positions and rose 0.32 percent to $1.2501.
Germany's lower house of parliament approved a law allowing
the country to make the biggest contribution to a 750 billion
euro emergency debt package to help protect the euro
[], but markets remained troubled by what they
perceive as poor co-ordination amongst European members in
tackling the crisis.
European finance ministers were meeting later on Friday to
discuss changes to budget rules to prevent another Greek-style
debt crisis.
The FTSEurofirst 300 <> index of top European shares
was down 2.2 percent, extending sharp falls over the previous
two sessions after Germany's decision to ban naked short selling
on some assets raised fears about a lack of coordination between
European policymakers. The UK's FTSE 100 <> slipped below
the key 5,000 mark for the first time since November 2009.
"Valuations have cheapened, but the underlying fundamental
issues have not been addressed and will continue to dog risk
asset markets in the months ahead," said analysts at RBC Capital
Markets in a note.
"The lack of political cohesion within the euro zone is
becoming more apparent by the day and this can only undermine
risk appetite and conviction in the longer-term outlook for
investing in the region."
FINANCIALS HAMMERED
Energy shares were among the biggest losers on concerns that
any setback to economic growth would hit demand for oil as the
oil price fell towards $70 a barrel. [] Financial stocks also
took a hammering following Thursday's approval by the U.S.
Senate of a sweeping Wall Street reform bill [].
Earlier in Japan, the Nikkei <> closed down 2.5 percent
and lost 6.5 percent on the week, its biggest weekly drop in
more than a year.
The euro, meanwhile, was also supported by rumours of
possible central bank intervention to prop up the ailing
currency.
"The intervention threat doesn't have to feel realistic,
when the market is in an extreme position even just a muttering
(of intervention) can cause a reaction," said Daragh Maher,
senior currency analyst at Credit Agricole CIB.
The U.S. dollar <.DXY> was up 0.42 percent to 85.92 against
a basket of currencies as investors sought safe-haven assets.
U.S. Treasuries also benefited.
(Additional reporting by Simon Falush, Naomi Tajitsu; Editing
by Susan Fenton)
