* MSCI world equity index at 199.27, down 0.66 pct
* Dollar recovers but eyes biggest weekly fall since 1985
* U.S. stock futures indicate steady Wall St open
By Carolyn Cohn
LONDON, March 20 (Reuters) - The dollar recovered ground on
Friday and U.S. stock index futures pointed to a steady open on
Wall Street, as markets regained some poise after falling on
concern over a Federal Reserve plan to buy government debt.
The dollar has fallen 4.5 percent against a basket of
currencies <.DXY> this week, in sight of its biggest weekly fall
since the Plaza Accord of 1985, when major economies agreed to a
formal depreciation of the dollar.
Analysts said the Fed's radical decision to buy $300 billion
of longer-term debt and vastly expand its balance sheet beyond
the current $2 trillion meant more and more U.S. dollars would
be created, straining demand for the currency and generating
inflation.
But the dollar clawed back some ground in Friday's session.
Friday is a "triple witching" day of futures and options
expiries, which typically adds to market volatility.
"The initial dollar-selling over the Fed was a bit overdone,
and it's not surprising to see profit-taking on short-term
positions," said Lee Hardman, currency economist at Bank of
Tokyo-Mitsubishi UFJ.
The dollar rose 0.75 percent against a basket of currencies
and around 0.66 percent against the euro to $1.3574 <EUR=>.
It rallied 1.2 percent against the yen to 95.60 <JPY=>, with
Tokyo markets shut for a holiday.
Data on Friday also showed euro zone industrial output
staged a new record plunge in January.
A senior German lawmaker told Reuters that euro zone
countries have agreed a rescue plan to prevent members of the
currency bloc going bankrupt and will probably use it.
[]
A European Central Bank spokesman said the lawmaker's
comments the ECB has a reserve fund to help euro zone states
were untrue.
U.S. stock index futures on the Dow Jones <DJc1>, S&P 500
<SPc1> and Nasdaq <NDc1> indicated a steady to firmer open on
Wall Street, and the pan-European FTSEurofirst 300 index
<> of top shares trimmed earlier losses to gain 0.18
percent to 716.34.
However, the MSCI's all-country index dropped 0.55 percent
to 200.05 <.MIWD00000PUS>, after hitting 1-month highs in the
previous session.
"People have some concerns about the potential inflationary
effects of what the Federal Reserve has done. If everything is
implemented, then the balance sheet of the Federal Reserve will
have gone up by about $3,000 billion ($3 trillion)," said Luc
Van Hecka, chief economist at KBC Securities.
"That's a lot of money and it's not unusual that people tend
to see this as a threat to price stability somewhere in the
future."
Stocks rose earlier this week as the Fed's plan to inject a
combined $1.15 trillion into the U.S. financial system improved
battered confidence in banks, but inflation worries took the
froth off those gains.
Euro zone government bond futures rose 6 ticks to 124.01
<FGBLc1>, after posting their largest one-day gain since 1996 on
Thursday, tracking Treasuries on the Fed debt announcement.
Oil <CLc1> pared gains on Friday, dipping 82 cents to $50.79
a barrel, and gold <XAU=> eased to $954.15 an ounce.
Commodities rallied earlier this week as the weakening
dollar made them cheaper for investors, while others looked for
a hedge against potential inflation.
(Additional reporting by Jessica Mortimer, editing by Chris
Pizzey)
