* Global stocks down around 1 pct, Europe off 0.2 pct
* Pound plunges against dollar, euro slides
* Euro zone bond spreads widen
By Jeremy Gaunt, European Investment Correspondent
LONDON, Jan 20 (Reuters) - Fears about banks and the world
economy underlined the difficulties confronting incoming U.S.
President Barack Obama on Tuesday, sending equities sharply
lower.
The dollar was stronger, however, with Britain's pound
plunging on worries about the UK's banking system.
World stocks as measured by MSCI <.MIWD00000PUS> were down
close to 1 percent, led by Asian shares. Emerging markets
equities <.MSCIEF> lost 1.7 percent and Japan's Nikkei average
<> closed down 2.3 percent.
European shares were faring slightly better but the
FTSEurofirst 300 <> was nonetheless down 0.2 percent.
U.S. stock futures fell in early trading as Wall Street
prepared to re-open after the Martin Luther King Jr holiday and
the world's attention was focused on Obama's inauguration.
Obama is to push a huge stimulus package to move the
world-leading U.S. economy out of its severe slump.
"The market is refocusing on the bigger global picture,"
said Justin Gallagher, head of Sydney sales trading at ABN AMRO,
pointing as well to expectations for weak corporate earnings
results in coming weeks.
"Clearly the market today continues to factor in more
disappointment and certainly, despite the inauguration of Obama
... the market is looking past that now and realising just how
big a mess the global economy is in," he said.
Banks were is focus after Royal Bank of Scotland <RBS.L> on
Monday unveiled the biggest loss in U.K. corporate history, and
after Britain launched a second bank rescue plan that failed to
restore confidence in the wobbly financial sector.
RBS was up 14 percent, but only after having plunged 67
percent on Monday.
"After yesterday's carnage, the smoke is still hanging over
the market," said Justin Urquhart Stewart, director at Seven
Investment Management.
"People talk about the nationalisation of the banks. That's
almost beside the point, like interest rate cuts. What we have
is the nationalisation of banking policy."
POUND PLUNGES
The pound plunged to a seven-year low against the dollar on
the banking sector woes, while the euro dropped to a six-week
low against the U.S. currency, weighed by worries about the
state of the euro zone economy.
Sterling <GBP=> was 2.9 percent down against the dollar at
$1.4040, its weakest level since 2002, while the euro fell 1
percent to $1.2971, having hit a six-week low of $1.2923 <EUR=>.
Fears about the outlook for the euro zone economy weighed on
the euro after the European Commission on Monday issued a grim
2009 forecast and Standard and Poor's cut Spain's debt ratings.
"The Obama euphoria is dollar positive, and the biggest
casualty of this is sterling because by contrast sterling
sentiment is really bad," Commerzbank currency strategist Antje
Praefcke said.
Euro zone government bonds stabilised on Tuesday after a
sharp sell-off the previous session.
Bonds issued by euro zone countries other than Germany
remained under pressure after recent downgrades of Spain and
Greece.
Two-year yields <EU2YT=RR> were 0.3 basis points lower at
1.499 percent, with 10-year yields <EU10YT=RR> up 2 basis points
at 3.012 percent.
The yield spread between Belgian bonds <BE10YT=RR> and
benchmark German Bunds <EU10YT=RR> climbed to 119.5 basis
points, while the equivalent Dutch spread hit 75.6 basis points,
the highest since the launch of the euro.
"It's contagion from the downgrades that we've seen in the
last few days. It's moving from one country to the next," said
Nomura rate strategist Sean Maloney. "People are speculating who
might be next."
(Additional reporting by Rebekah Curtis, Rafael Nam, Jessica
Mortimer and Kirsten Donovan; Editing by Andy Bruce)
