* Euro hovers hits 18-mth low vs dollar on debt concerns
* MSCI world equity index slides roughly 0.7 percent
* Scepticism about fiscal austerity keeps risk aversion high
(Adds comment and details; updates throughout)
By Naomi Tajitsu
LONDON, May 14 (Reuters) - The euro hit an 18-month low
versus the dollar and European shares fell sharply on Friday on
speculation that fiscal austerity in some euro zone countries
may stifle economic growth.
High-risk assets including stocks took a hit and worries
about the euro zone debt crisis prompted demand for safer
investments, pushing gold to a record high while the dollar hit
its strongest versus a currency basket in a year.
European authorities announced a massive debt safety net for
Greece, Spain and Portugal this week, but investors remain
sceptical whether those countries can take the pain of
overhauling their poor public finances.
Such uncertainty drove the euro <EUR=> as low as $1.2433
according to Reuters data, its weakest since November 2008,
having broken through options barriers at $1.2500 and $1.2450.
Gold prices <XAU=>, which often climb in times of risk
aversion, soared to a record high of $1,248.95, while the yellow
metal priced in euros, sterling and Swiss francs also hit its
strongest ever.
"The uncertainty brought about by sovereign risk is pushing
markets lower," said Nick Parsons, head of markets strategy at
nabCapital.
"Until we get clarity about whether austerity measures can
be implemented, risk markets will head lower."
Such uncertainty pushed the MSCI world equity index
<.MIWD00000PUS> down 1 percent, while the FTSEurofirst 300 index
<> fell 2.0 percent.
U.S. stock futures <SPv1> pointed to a lower opening on Wall
Street.
RISK OFF
The weak euro helped to push the dollar <.DXY> up to 85.873
against a basket of major currencies, its highest since April
2009.
The single European currency is poised to fall roughly 2.5
percent against the dollar this week, unable to sustain a relief
rally to $1.31 hit earlier this week after the EU announced its
debt aid plan.
"The euro hasn't derived any benefits from any budget cuts
from Spain and Portugal," said Chris Turner, head of FX strategy
at ING, which forecasts the euro will be at $1.15 in six months.
"People are either concluding that these cuts will be
unsuccessful and debt sustainability remains a key issue, or
they will be successful in aggressive fiscal tightening and that
these economies would slow aggressively and the European Central
Bank has to keep interest rates low."
The EU's emergency assistance plan has done little to
bolster confidence in the euro system, a concern highlighted by
U.S. While House Economic Adviser Paul Volcker, who on Thursday
said Europeans debt troubles could undermine the single
currency. []
U.S. crude oil <CLc1> fell roughly 2 percent on the day to
hit a three-month low of $72.72 per barrel.
Risk aversion boosted bond markets, driving the June bund
future <FGBLc1> up 62 ticks to 126.48.
Parsons at nabCapital said investors have been taking risk
off the table, pulling out of equity shares since year-to-date
returns on stock markets fell into negative territory earlier
this month.
Investors' anxiety towards riskier assets also has been
reflected in the movement of cash between markets this week.
Money market funds, perceived to be among the least risky
investments, attracted new money this week for the first time
since January as investors moved back into cash, data from EPFR
Global showed. []
At the same time, the amount of money pulled from risky,
high-yield bond funds hit a five-year high, while equity funds
in emerging markets also suffered.
(Additional reporting by Natsuko Waki; editing by Ian Jones)
