* MSCI world equity index down 0.5 percent at 342.82
* Top U.S. mortgage lenders and other banks fuel concerns
* Euro pressured by weak euro zone data, oil off record low
By Natsuko Waki
LONDON, July 10 (Reuters) - World stocks fell towards this
week's 21-month low on Thursday as fresh concerns resurfaced
over the financial sector -- the epicentre of the nearly
one-year-old credit crisis.
Woes at top U.S mortgage lenders intensified overnight as
Fannie Mae <FNM.N> and Freddie Mac <FRE.N> fell 13 and 23
percent respectively on concerns the two home finance firms may
need to raise tens of billions of dollars of new capital.
Merrill Lynch <MER.N> -- among several banks which report
earnings next week -- saw its shares fell nearly 10 percent
after Fitch Ratings said it may cut the bank's debt rating given
expected writedowns and diminished prospects for earnings.
"All the U.S. indexes are down, everything is down.
Sentiment is bad, that's it. I don't see how we are going to get
out of this anytime soon," said Giuseppe-Guido Amato, analyst at
Lang & Schwarz in Dusseldorf.
"The old problems are still the new ones. People said that
with the rescue of Bear Stearns, this was the beginning of the
end. What rubbish! We see now that we are only at the end of the
beginning. This is to be continued."
The FTSEurofirst 300 index <> fell 1.8 percent while
MSCI main world equity index <.MIWD00000PUS> fell 0.5 percent to
stand just above Tuesday's 21-month low.
Major equity indexes in the world have fallen 20 percent in
the past few weeks, plunging into bear market territory.
"Fears over the banks continue," said Justin Urquhart
Stewart, investment director at Seven Investment Management.
"But some shares have fallen to levels where they were in
1988 and people are increasingly thinking about value, which
could prompt a rally in the next few weeks."
STAGFLATION FEARS
Financial markets are facing headwinds as the credit
crisis-induced slowdown in the U.S. economy spreads into other
parts of the world.
Adding to such evidence, data showed French industry output
fell 2.6 percent in May, hit by a slump in the automobile and
energy sectors. Italian industry output also fell.
Surging oil prices are also fanning inflation concerns, a
case illustrated by fresh data showing Japan's annual wholesale
price inflation hit a 27-year high of 5.6 percent in June from a
year earlier.
The euro slipped after French data to trade down 0.15
percent on the day at $1.5715 <EUR=>.
"Overall, this (French data) clearly indicates that the
European economy is decelerating very fast and confirms our view
that the ECB will have to focus on growth in the medium term,"
ING said in a note to clients.
The dollar was up 0.2 percent against a basket of major
currencies <.DXY>.
Emerging sovereign spreads <11EMJ> were unchanged while
emerging stocks <.MSCIEF> were steady on the day.
The September Bund future <FGBLU8> drew in some safe-haven
demand, rising 10 ticks, although persistent inflation concerns
were keeping investors from buying government bonds
aggressively.
U.S. light crude <CLc1> was steady at $136.15 a barrel, off
last week's record high above $145. Gold <XAU=> was steady at
$926.40 an ounce, supported by escalating tensions in the Middle
East after Iran test-fired missiles.
(Additional reporting by Sylvia Westall and Sitaraman Shankar)
