(Recasts, updates prices with latest move)
By Natsuko Waki
LONDON, April 10 (Reuters) - Stocks extended losses and the
dollar set a record low against the euro on Thursday as concerns
about the banking sector resurfaced after Lehman Brothers
liquidated three investment funds and took a balance sheet hit.
Oil resumed its march towards Wednesday's record peak,
highlighting inflation pressures which are likely to keep the
European Central Bank to keep interest rates on hold.
Sterling hit a new 11-year low on a trade-weighted basis and
tumbled to record troughs versus the euro as this week's weak
housing and consumer morale surveys cemented expectations the
Bank of England would cut interest rates later.
Lehman <LEH.N> liquidated three funds that had lost value
and took $1 billion of assets onto its balance sheet, according
to a filing with the U.S. Securities and Exchange Commission.
The bank blamed the liquidation on "market disruptions".
That, coupled with soft first-quarter earnings and the IMF's
grim assessment on bank-sector losses and the global economy
cooled optimism that the worst of the credit crisis may be over.
A shift in investor focus back to economic fundamentals also
overshadowed expectations that Group of Seven rich nations would
unveil a drastic plan to help stabilise banks and financial
markets at their meeting this weekend.
"Risk aversion picked up ahead of the G7 as concerns about
U.S. growth and worries about first quarter results have seen
the dollar come under pressure again," said Antje Praefcke,
currency strategist at Commerzbank in Frankfurt.
The FTSEurofirst 300 index <> was down 1.3 percent
while MSCI main world equity index <.MIWD00000PUS> was down
slightly on the day. U.S. stock futures fell half a percent
<SPc1>, indicating a weaker start on Wall Street.
Tokyo stocks <> fell almost 1.3 percent while Singapore
and Sydney shares also eased.
The IMF cut its 2008 world growth forecast this week and
said losses from the credit crisis would approach $1 trillion.
RATES DIVERGENCE
The dollar hit record lows of $1.5912 per euro <EUR=>, while
it fell 0.5 percent against a basket of currencies <.DXY>.
Sterling had fallen as far as 80.29 pence per euro
<EURGBP=>. On the trade-weighted index, sterling is at its
weakest since 1996.
The BoE is expected to cut rates by a quarter point to 5.0
percent [].
"A rate cut's fine, but we do need to know that we're going
to do more in terms of liquidity problems because ... cutting
interest rates without assisting further in the liquidity crisis
is pointless," said David Buik of spread better Cantor Index.
The ECB announces its decision at 1145 GMT, but its firm
focus on inflation -- at a record 3.5 percent -- is likely to
keep rates on hold at 4 percent.
"People just want to have a feeling of whether the
hardliners in the ECB do get a touch softer," said Heino Ruland,
strategist at FrankfurtFinanz in Frankfurt.
Emerging sovereign spreads <11EMJ> was steady at 292 bps
while emerging stocks <.MSCIEF> were up half a percent.
The June Bund future <FGBLM8> rose 70 ticks, garnering
safe-haven flows.
U.S. light crude <CLc1> rose 1.1 percent to $112.11 a
barrel, within striking distance of Wednesday's record high of
$112.21. Gold <XAU=> ticked higher to $933.50 an ounce, helped
by oil prices.
(Additional reporting by Simon Falush, Amanda Cooper and
Rebekah Curtis; Editing by Michael Winfrey)
