* MSCI world index up after biggest 1-day loss in 14 months
* Stocks, euro gain on relief at ECB funding operation
* Q2 ends with losses of more than 10 pct, worst since 2008
(Updates with European markets' close)
By Jennifer Ablan
NEW YORK, June 30 (Reuters) - World stocks steadied on
Wednesday after their biggest one-day plunge in more than a
year, with U.S. and European markets bouncing on the last day
of the second quarter as European Central Bank funding
operations calmed nerves.
Fresh banking and sovereign debt stress in Europe and
growing fears of a "double-dip" recession for the global
economy have gripped investors again in June's final days.
MSCI's world equity index <.MIWD00000PUS>, which has lost
more than 10 percent since April and is down more than 7
percent over the first six months of 2010, held the line after
losing more than 3 percent on Tuesday. The global index, up
0.06 percent on Wednesday, has recorded its worst quarter
since the final three months of 2008 when the demise of Lehman
Brothers sent world markets and the economy into a tailspin.
All three major U.S. stock indexes chalked up modest gains
following a report on business activity in the U.S. Midwest
showing expansion in June for a ninth straight month. The Dow
Jones industrial average <> was up 10.74 points, or 0.11
percent, at 9,881.04. The benchmark Standard & Poor's 500
Index <.SPX> was up 3.22 points, or 0.31 percent, at 1,044.46.
The Nasdaq Composite Index <> was up 11.25 points, or
0.53 percent, at 2,146.43.
The Institute for Supply Management-Chicago Inc said on
Wednesday its business barometer fell to 59.1 in June from
59.7 in May, but that was still slightly above economists'
expectations. A reading greater than 50 signals expansion.
On Wall Street, the market's breadth was overwhelmingly
positive on the day after the S&P 500's lowest close in eight
months. At midday, advancers outnumbered decliners on the New
York Stock Exchange by a ratio of about 2 to 1 while on the
Nasdaq, about eight stocks rose for every five that fell.
Investors seemed ready to bid farewell to the first half
of the year.
"The recent market decline reflects a needed dose of
skepticism," said Alan Gayle, senior investment strategist at
RidgeWorth Investments in Richmond, Virginia, which oversees
$63 billion. "We remain cautiously positive on the economy and
believe better investment opportunities will develop, but our
equity allocations remain closer to neutral over the near
term."
That sentiment is shared worldwide. Investors are entering
the second half of 2010 in a highly cautious mood, taking
equity exposure to its lowest level in well over a year and a
half, Reuters polls showed on Wednesday. For more details
please click on [].
This week, worries that the expiration of some 442 billion
euros of one-year emergency ECB loans would leave many
strapped European banks with severe financing difficulties
eased a little after a replacement 3-month operation saw less
of a scramble for funds than feared.
"It's definitely a good sign and means there is still some
interbank lending occurring within the European money market,
and that it's not just a vertical relationship between banks
and the ECB," said Gilles Moec, economist at Deutsche Bank.
The ECB said 171 banks borrowed 131.9 billion euros
($161.4 billion) over three months at a flat rate of 1 percent
-- below expectations for demand of 210 billion euros.
The FTSEurofirst 300 <> index of top European shares
unofficially closed down 0.3 percent at 993.04 points, a
three-week low. The benchmark index ended the torrid quarter
with a loss of 7.9 percent, its worst quarterly performance
since the first quarter of 2009.
ECB relief and slightly higher short-term interest rates
due to the week's net drain of emergency funds helped push the
euro <EUR=> sharply higher. It rallied almost 1 percent after
two days of steep losses, gaining more than 1 percent on
sterling. In New York trading, the euro was up 0.87 percent at
$1.2285 from a previous session close of $1.2179.
MOUNTING NERVES
Although U.S. and European markets firmed on Wednesday,
the mood remained cautious.
Looming publication of European bank stress test results
next month have added to nerves about the sector. The
Bundesbank said on Wednesday that German banks have agreed to
participate in EU-wide stress tests once detailed parameters
are published.
Alongside European banking and sovereign debt jitters and
the calendar stresses of the half-year mark, investors are
increasingly fearful for global economic growth after a series
of downbeat reports from the United States and China.
Wednesday data showed U.S. private payroll gains were
muted in June, rising just 13,000, as small businesses cut
jobs, according to payroll giant ADP.
"Markets are very sensitive to any signs that growth is
failing," said Bernard McAlinden, investment strategist at NCB
Stockbrokers in Dublin.
For Wednesday, though, investors had some appetite for
risk-taking during quarter-end as U.S. Treasuries were under
pressure.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 4/32, with the yield at 2.97 percent, but still below the
3 percent level. And the 2-year U.S. Treasury note <US2YT=RR>
was down 2/32, with the yield at 0.64 percent, while the
30-year U.S. Treasury bond <US30YT=RR> was unchanged, with the
yield at 3.93 percent.
In currencies, the dollar was down against a basket of
major trading-partner currencies, with the U.S. Dollar Index
<.DXY> down 0.12 percent at 85.924 from a previous session
close of 86.025. Against the Japanese yen, the dollar <JPY=>
was down 0.06 percent at 88.49 from a previous session close
of 88.540.
In the commodity markets, oil and gold went their separate
ways.
Spot gold prices <XAU=> rose $2.30, or 0.19 percent, to
$1,242.70. The Reuters/Jefferies CRB Index <.CRB> was up 0.74
of a point, or 0.29 percenet, at 257.01.
Energy prices were another story, however. U.S. light sweet
crude oil <CLc1> fell $1.13, or 1.5 percent, to $74.81 per
barrel.
(Additional reporting by Mike Dolan, Atul Prakash, Kirsten
Donovan and Kevin Yao; Editing by Jan Paschal)
