* MSCI world equity index down 1.3 percent at 204.35
* The euro at 2-month low on emerging Europe worries
* Gov bonds firmer but intra-euro zone spreads widen
By Natsuko Waki
LONDON, Feb 17 (Reuters) - World stocks fell to a two-week
low on Tuesday, and government bonds and gold surged as concerns
about the economy and corporate profit intensified, while
worries about a deterioration in eastern Europe hit the euro.
Investors grew worried about the health of European
companies after L'Oreal <OREP.PA>, the world's biggest beauty
products group, late on Monday posted full-sales growth below
its twice-revised target and steered clear of giving guidance
for 2009. More results from key corporates are due on Tuesday.
The common currency hit a two-month low against the dollar
after credit rating agency Moody's said the recession in the
emerging economies of Europe was likely to be more severe than
elsewhere. This would put the financial strength rating of local
banks and their Western parents under pressure.
"People are beginning to speculate that East Europe is maybe
the euro zone's subprime," said Adam Cole, head of FX strategy
at RBC Capital Markets.
The euro lost more than 1 percent to a low of $1.2603
<EUR=>.
Western European banks led by UniCredit <CRDI.MI>, Erste
Group Bank <ERST.VI>, Raiffeisen International <RIBH.VI> and
Societe Generale <SOGN.PA> have bought up most of emerging
Europe's banking sector in recent years to tap the rampant
credit growth that fuelled the region's boom.
Within the euro zone, risk aversion flows are fuelling
capital into liquid German debt, driving spreads between Greek,
Dutch, Austrian and Portuguese debt and German paper to their
widest levels on record.
The dollar <.DXY> rose 1.1 percent against a basket of major
currencies.
The yen was down 0.4 percent at 92.16 per dollar <JPY=>
after Japanese Finance Minister Shoichi Nakagawa said he would
resign, despite denying he was drunk at a Group of Seven news
conference in Rome on the weekend.
RISK SELL-OFF
MSCI world equity index <.MIWD00000PUS> fell 1.3 percent,
hitting its weakest since Feb. 2.
The FTSEurofirst 300 index of leading European shares
<> also lost 1.3 percent. Emerging stocks <.MSCIEF> lost
almost 3 percent.
"As we move further into 2009, it is becoming clear that the
green shoots of recovery are becoming harder and harder to
find," said Chris Hossain, senior sales manager at ODL
Securities.
U.S. crude oil <CLc1> fell 2.7 percent to $36.50 a barrel,
pressured by concerns that a slowing economy would hit energy
demand.
A fresh wave of risk aversion this week has drawn funds into
safer government bonds. The yield on two-year euro zone debt
<EU2YT=RR> fell to 1.210 percent, its lowest on record.
The March bund futures <FGBLc1> rose 40 ticks.
Spot gold rose 2 percent to $960 an ounce <XAU=>, its
highest in seven months. Gold, priced in the euro, sterling, the
South African rand and the Canadian dollar, hit record highs.
(Additional reporting by Kirsten Donovan and Atul Prakash;
editing by David Stamp)
