* Economic worries derail tentative stock rally
* European shares off 1.6 percent, Japan 2.4 percent
* Wall Street set for losses
* Yen rises as investment repatriation increases
By Jeremy Gaunt, European Investment Correspondent
LONDON, March 12 (Reuters) - Economic gloom returned to
financial markets on Thursday with warnings about further
declines in demand and production hitting equities and boosting
bonds.
Wall Street looked set to open lower after two days of
gains. Japan's yen rose strongly as investors began repatriating
money towards the end of the business year.
World Bank President Robert Zoellick told Britain's Daily
Mail newspaper the global economy was set to fall 1 to 2 percent
this year.
China, meanwhile, said industrial growth had slowed to a
record low pace and Japan reported rising inventories,
signalling more production and job cuts ahead.
This followed the release of Reuters polls on Wednesday
which showed economists expecting the grip of global recession
to remain tight well into next year. []
"Investors are quite sceptical now," said Albert Hung, chief
investment officer at Alleron Investment Management in
Australia. "The economy is still in very poor shape and there
are no clear signs of recovery yet."
The economic worries halted this week's tentative equity
rally, which has put the MSCI all-country world stock index
<.MIWD00000PUS> up around 4 percent for the week.
The pan-European FTSEurofirst 300 <> index of top
European shares was down 1.6 percent.
Earlier, Japanese stocks fell sharply. The benchmark Nikkei
<> lost 2.4 percent to 7,198.25, eating away at Wednesday's
4.6 percent gain -- the biggest one-day gain in six weeks.
The broader TOPIX <> finished down 3 percent at 700.93,
its lowest close since December 1983.
REPATRIATING YEN
The yen rallied broadly, rising more than one percent
against the dollar and euro, as Japanese investors repatriated
funds and short-term speculators bought yen.
Japanese investors typically bring home funds to window
dress their books before the end of the business year in March.
The dollar fell as low as 95.68 yen, its weakest in two
weeks. It was last down 0.7 percent at 96.54 yen <JPY=>.
Elsewhere, the dollar recovered as a recent run in risk
appetite lost steam, with the euro and sterling both down
against the dollar.
The euro lost 0.3 percent to $1.2785 <EUR=>.
On euro zone government debt markets, the 10-year cash Bund
yield <EU10YT=RR> was down 5 basis points at 3.023 percent. The
interest rate-sensitive two-year Schatz yield <EU2YT=RR> was
down 8 basis points at 1.363 percent. Bond yields move inversely
with prices.
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
Blog click on http://blogs.reuters.com/macroscope; for Hedge
Fund Blog click on http://blogs.reuters.com/hedgehub)
(Editing by Chris Pizzey)
