GLOBAL MARKETS-Stocks tumble, yen surges as crisis escalates

                                
 * MSCI world equity index down 2.6 pct at 275.95
                                
 * Oil, emerging stocks also tumble as credit fears escalate
                                
 * Government bonds, low-yielding yen soar
                                
 By Natsuko Waki
                                
 LONDON, Oct 6 (Reuters) - World stocks dived to three-year
lows on Monday as investors fled to government bonds and the
low-yielding yen, fearing efforts by policymakers to contain the
credit crisis might not be enough to prevent a recession.
                                
 Oil fell nearly 4 percent to 8-month troughs while emerging
stocks tumbled 5 percent as the fallout from the worst financial
crisis in 80 years spread in Europe where three more governments
were forced to offer blanket bank deposit guarantees in the face
of a growing number of bank failures.
                                
 In South Korea, banks were having trouble raising foreign
currency funds and the government pledged to give banks access
to the country's foreign exchange reserves, the world's sixth
largest at nearly $240 billion.
 Despite weeks of huge liquidity injection by central banks,
money markets remained tight, reflecting deep-rooted reluctance
by banks to lend to each other.
                                
 "We have a seriously weak and fear-driven market on our
hands," said Tom Hougaard, chief market strategist at City
Index.
                                
 The FTSEurofirst 300 index <.FTEU3> fell 4.2 percent while
MSCI main world equity index <.MIWD00000PUS> lost 2.6 percent to
its weakest level since May 2005. The index has shed 31 percent
since January.
                                
 A flurry of measures by countries around the world is doing
little to calm investor nerves.
                                
 Germany, Austria and Denmark followed Ireland to guarantee
private deposit accounts after European leaders failed to agree
on a concrete common rescue scheme at a weekend meeting in
Paris.
                                
 Leaders from France, Britain, Italy and Germany and European
Central Bank President Jean-Claude Trichet pledged to take all
steps needed to ensure financial stability and coordinate.
                                
 The emergency summit came as the U.S. government enacted a
landmark $700 billion bank bailout on Friday.
                                
 The yen surged more than 1 percent to 103.71 per dollar
<JPY=> while the euro tumbled 0.7 percent to a 13-month low of
$1.3575 <EUR=>. The dollar <.DXY> rose half a percent against a
basket of major currencies.
                                
 The interbank cost of borrowing dollars for three months was
indicated as high as 5.47 percent on Reuters system <USD3MD=>.
This compares with market expectations for January interest
rates of 1.50 percent -- half a point below the current rate.
                                
 The December Bund future <FGBLc1> rose 80 ticks, drawing in
funds seeking safer assets.
                                
 Emerging sovereign spreads <11EMJ> widened 9 basis points
while emerging stocks <.MSCIEF> lost 5.2 percent.
                                
 U.S. light crude <CLc1> fell 3.8 percent to $90.34 a barrel
as concerns grew but the slowing economy would choke off energy
demand. Gold <XAU=> fell to $828.20 an ounce.
 (Editing by Mike Peacock)