* European shares down 1.7 pct <>, follows Asia's lead
* Fannie, Freddie worry rattles investors again
* Oil hits slides again, reigniting dollar
* Dollar index at its highest this year <.DXY>
By Veronica Brown
LONDON, Aug 19 (Reuters) - European stocks slid in tandem
with their Asian counterparts on Tuesday, haunted by renewed
concern surrounding the top U.S. mortgage finance companies,
while falling oil helped send the dollar to fresh peaks.
Europe's shares were rattled, falling 1.6 percent in early
trade, after Asian stocks hit a 2-year low overnight as an end
to the worst U.S. housing crisis since the Great Depression
looked as far away as ever.
Demand worries sparked by a weak global economic outlook
took oil below $112 a barrel, but reignited the dollar's rally
to its highest this year against a basket of major currencies as
investors to bulked up their holdings.
Jitters over U.S. financial sector stability bubbled to the
surface again after an article in Barron's said a government
bailout could wipe out existing holders of Fannie Mae <FNM.N>
and Freddie Mac <FRE.N> common stock with other asset holders
also suffering losses. []
"Overall the environment for equity markets remains very
difficult as it has now become clearer that we are witnessing a
more severe economic slowdown," said Tammo Greetfeld, a
strategist for UniCredit in Munich.
By 0824 GMT, the FTSEurofirst 300 Index <> had fallen
1.7 percent to 1169.13 points. Japan's Nikkei share average
<> tumbled 2.3 percent to a one-month low, while the MSCI
pan-Asia equities index <.MIAS00000PUS> fell 1.7 percent to its
lowest since July 2006, down 22 percent this year.
The drop in oil prices was felt far and wide, with other
commodities including gold <XAU=> and copper <MCU3>
relinquishing tentative rallies in the previous session.
Recent slides in commodity prices have now left the
Reuters-Jefferies CRB Index down 18.6 percent from levels seen
in early July <.CRB>.
Crude <CLc1> was down 71 cents at 112.16 a barrel <CLc1>,
having earlier fallen as low as $111.64 on expectations that
Tropical Storm Fay would bypass key assets in the Gulf of
Mexico.
SECOND WIND FOR DOLLAR
While falling crude prices weighed on energy shares, they
saved the dollar from credit market malaise with a growing view
that the United States will not be the only economy to suffer
weak growth and fragile asset markets.
The U.S. dollar index <.DXY>, a basket of six major
currencies traded on the ICE Futures exchange, rose to 77.413,
its highest since December 2007.
Meanwhile a beleaguered euro, dogged by a contracting euro
zone economy, fell to a six month low of $1.4631 <EUR=>,
according to Reuters data.
"The strength in the dollar index has little to do with
dollar strength but more the weakness of the other currencies,"
said Michael Klawitter, senior currency strategist at Dresdner
Kleinwort in Frankfurt.
"The market's focus is just very one-sided. At the moment
the market has decided to focus on the weakness of the euro zone
and hasn't taken a balanced view of risks in the U.S.," he said.
Further indications on euro area sentiment are expected with
the release of Germany's ZEW investor index at 0900 GMT.
A Reuters poll forecast a slight improvement in the index
coverning sentiment in the euro area's largest economy to -62.0
for August, its first gain since March, from July record low of
-63.9.
(Additional reporting by Amanda Cooper and Jamie McGeever in
London, editing by Mike Peacock)
