* Shares, dollar fall on Obama's plan as risk aversion rises
* Safe-haven government bonds and yen gain ground
* Emerging stocks set for biggest weekly fall in 3 months
By Ian Chua
LONDON, Jan 22 (Reuters) - Stock markets from Sydney to
London slumped on Friday with financial shares stung by U.S.
President Barack Obama proposed sweeping restrictions on banks
while the yen rose broadly on mounting risk aversion.
Lower-risk government bonds benefited from the flight to
safety, driving benchmark 10-year yields to fresh five-week
lows.
Wall Street looked set for a shaky start after having
suffered its worst one-day percentage fall since October on
Thursday. Stock index futures <SPc1><NDc1><DJc1> were all down
between 0.1 and 0.3 percent.
Among the hardest hit, emerging market stocks <.MSCIEF> fell
1.8 percent and were set for their biggest weekly fall since
early November with losses of more than 4 percent this week.
Global markets had already recoiled in recent weeks on fears
Chinese demand would slow as Beijing taps the brakes on its
roaring growth to stave off inflation and keep the economy from
overheating.
Obama's proposals, which still need congressional approval,
would prevent banks or financial institutions that own banks
from investing in, owning or sponsoring a hedge fund or private
equity fund. []
"The witch hunt against the banks continues and while that
may be justified in terms of lowering risk, it's not good for
P&L and restricts the level of economic activity so it's good
for bonds," said Charles Diebel, strategist at Nomura.
Global stocks as measured by MSCI <.MIWD00000PUS> fell 0.6
percent to their lowest level since Dec. 23.
In Europe, the regional FTSEurofirst 300 index <> shed
1.3 percent with Germany's DAX <>, France's CAC 40 <>
and the UK's FTSE 100 index <> all down more than 1
percent.
Barclays <BARC.L>, BNP Paribas <BNPP.PA>, HSBC <HSBA.L> and
Deutsche Bank <DBKGn.DE> all slid between 2 to 6 percent.
Even U.S. conglomerate General Electric Co's <GE.N>
quarterly earnings, which topped Wall Street expectations,
failed to inject any cheer into the markets. []
"Investors are less interested in what companies are
earning," said Jeremy Batstone-Carr, head of research at Charles
Stanley in London.
"What investors are more concerned about is the extent to
which revenues may come under pressure given the ongoing
weakness in the global economy as well as uncertainty pertaining
to the outlook."
BONDS, YEN CLIMB
Mounting aversion to risky assets helped bolster lower-risk
government bonds, helping pin bond yields down.
The 10-year German Bund yield <EU10YT=RR> fell to a
five-week low at 3.181 percent and the equivalent U.S. yield
<US10YT=RR> reached 3.58 percent.
Investors, however, continued to give Greek government bonds
a wide berth amid concerns the heavily indebted country was
planning to issue new bonds.
The 10-year Greek government bond yield spread <GR10YT=RR>
above benchmark German Bunds <EU10YT=RR> rose to a fresh euro
lifetime high of 313 basis points.
In the currency market, the dollar edged lower while the yen
gained as investors pared riskier trades.
While the U.S. currency usually benefits from risk aversion,
Obama's plan posed a downside risk for U.S. bank profits and the
economy, and thus weighed on the dollar.
"A sharp fall in dollar/yen was the most notable movement
and as one of the few trades that is simultaneously short risk
and short dollar, further weakness would be our favoured way of
playing downside equity risk," said Adam Cole, global head of fx
strategy at RBC Capital Markets.
The dollar hit a five-week low of 89.78 yen, according to
electronic trading platform EBS and was last at 90.10 yen
<JPY=>, down 0.3 percent on the day.
U.S. crude <CLc1> eased 0.5 percent to $75.73 a barrel,
having earlier plumbed a one-month low at $75.62, while copper
<MCU3=LX> slipped 0.4 percent to $7,250 a tonne after also
hitting a one-month low at $7,194.
(Additional reporting by Joanne Frearson, Kirsten Donovan and
Tamawa Desai; Editing by Andy Bruce)
