* MSCI world equity index down 2 pct at 305.34
* Wave of bailouts as B&B, Fortis, Glitnir part-nationalised
* Shares, euro tumble, overshadowing TARP; dollar surges
(Updates with Glitnir, Hypo and fresh prices)
By Natsuko Waki
LONDON, Sept 29 (Reuters) - World stocks tumbled on Monday,
led by sharp falls in Europe as three European banks became the
latest casualties of spreading credit woes, forcing partial
nationalisations and overshadowing Washington's bailout plan.
The euro fell nearly 2 percent at one point while the dollar
and safe-haven government bonds surged as the Belgian, Dutch and
Luxembourg governments rescued financial firm Fortis <FOR.BR>
over the weekend to prevent a domino-like spread of failure.
The UK government said lender Bradford & Bingley's <BB.L>
branch network will be sold to Spanish bank Santander <SAN.MC>
and the remainder of the group will be nationalised.
Moreover, Iceland's government bought a 75 percent stake to
take control of Glitnir bank <GLB.IC> after the bank's funding
position deteriorated in recent days, knocking the crown
currency to record lows against the euro.
German lender Hypo Real Estate <HRXG.DE> struck a
last-minute deal with the government and a consortium of banks
to resolve a refinancing squeeze.
The money market remained frozen with banks refusing to lend
to one another for all but the shortest periods, prompting
central banks in Europe and Asia to pump in more cash.
U.S. lawmakers were due to vote later on Monday on a $700
billion toxic debt fund after more than a week of negotiations.
"One sees now, that not only American but also European
banks are affected and that the crisis is after all global,"
said Carsten Klude, strategist at MM Warburg.
"A rescue plan worth 700 billion is simply not enough to
overcome the crisis for the foreseeable future. If anything, all
the real economy problems will escalate as a result in the
foreseeable future."
MSCI main world equity index fell 2 percent <.MIWD00000PUS>
to its weakest in more than a week. The FTSEurofirst 300 index
was down 3.3 percent <>, while a measure of banking stocks
lost 5.4 percent <.SX7P>.
"The nationalisations have an incredibly negative read
across the sector," said Mark Sartori, head of European sales
trading at Fox-Pitt, Kelton.
"The contagion is spreading to mainland Europe and
everyone's asking: who's next?"
The December U.S. S&P 500 future was down 1.9 percent
<SPc1>, reversing initial gains on news the bailout plan was set
for a vote in the House of Representatives.
EUROPEAN CURRENCIES UNDER PRESSURE
Currency markets also felt the pinch of banking sector
contagion, with the euro falling more 2 percent to a 10-day low
of $1.4301 <EUR=>. A fall of 2.1 percent or more would be the
biggest 1-day fall since Jan 2001, while a fall of 2.3 percent
or more would be the biggest since its launch in 1999.
In addition, sterling dropped more than 2 percent to $1.7962
<GBP=>, heading for its steepest one-day loss since mid-1993.
The Icelandic crown lost more than 3 percent to its all-time
low of 143.27 against the euro <EURISK=> while it lost over 5
percent against the dollar to a six-year trough <ISK=>.
As European currencies fell broadly, the dollar rose 1.2
percent against a basket of six major currencies <.DXY>.
December Bund futures <FGBLZ8> were 88 ticks higher, drawing
in safe-haven demand.
The interbank cost of borrowing dollars for three months
indicated on Reuters system rose as high as 5.27 percent
<USD3MD=>, the highest this year.
The closely-watched TED spread, or the difference between
these market-based dollar rates and three-month U.S. government
borrowing rates, fluctuated in a wide range of around 280 to 440
basis points.
Emerging sovereign spreads <11EMJ> widened 2 basis points
while emerging stocks <.MSCIEF> lost 2.5 percent.
U.S. light crude <CLc1> fell 3.2 percent, reflecting growing
concerns over energy demand as the financial crisis spread
further to Europe.
Gold <XAU=> ticked lower to $876.65 an ounce.
(Additional reporting by Sarah Marsh; editing by Stephen
Nisbet)
