* MSCI world index down 0.74 percent at 219.79
* Yen rises as investors eye global rate cuts, oil drops
* Yuan falls sharply on speculation of FX policy shift
By Carolyn Cohn
LONDON, Dec 1 (Reuters) - European shares fell after staging
a sharp rally last week and the yen rose on Monday as investors
looked to interest rate cuts in several major economies, while
oil dropped as OPEC delayed a decision on a third supply cut.
The MSCI world equity index <.MIWD00000PUS> fell 0.74
percent after rising nearly 13 percent last week.
The FTSEurofirst 300 index of leading European shares
<> dropped 1.63 percent following a gain of more than 13
percent last week, with banks and mining companies leading the
way down.
"It's a question of when the markets can start ignoring the
bad economic news and take the view that things will get
better," said Bernard McAlinden, investment strategist at NCB
Stockbrokers.
"Our view is that the stimulus packages will work."
Equity markets had perked up last week after the U.S.
government rescued banking giant Citigroup <C.N>, the Federal
Reserve said it would buy up to $800 billion of mortgage-related
and consumer debt and China cut rates.
Trading was subdued due to the U.S. Thanksgiving holiday,
but fund tracker EPFR Global said there were sizeable inflows
into European equity funds last week.
Oil dropped by more than $2 a barrel to $51.38 <LCOc1> on
Monday after producer cartel OPEC decided to delay a decision on
a third supply cut until its next meeting later in December, as
economic woes squeeze oil demand.
The low-yielding yen rose around 1 percent against the euro
<EURJPY=> and dollar <JPY=>, with investors seeing more stimulus
to the global economy this week in the form of rate cuts in
Australia, New Zealand, Britain and the euro zone.
Euro zone manufacturing activity sank to a record survey low
[], while the Bank of Japan said it would hold an
emergency policy meeting on Tuesday to examine measures to boost
flexibility in fund operations. []
The Australian dollar fell 2 percent against the dollar
<AUD=>, the New Zealand dollar dropped 3 percent <NZD=> and the
pound weakened by more than 1 percent <GBP=>.
The yuan also fell sharply against the dollar, heading for
its biggest daily fall since its peg to the dollar was abolished
in July 2005, on speculation China might adjust foreign exchange
policy, permitting more yuan weakness, to stimulate its economy.
A gauge of manufacturing activity in China showed the
sharpest monthly contraction in the data series' 4-1/2-year
history on plunging new orders for export goods. []
"The crucial question no longer is whether or not a global
recession has started, but rather how long it will last," said
Bank of America in a client note.
Yields fell on safe-haven government bonds, with the 10-year
Treasury yield <US10YT=RR> hitting a 50-year low of 2.890
percent in the Tokyo session.
The December Bund future <FGBLc1> rose 22 ticks on the day.
(Additional reporting by Brian Gorman, editing by Mike Peacock)
