* MSCI world equity index down 1 pct
* ECB 50 bps cut hits European stocks
* Government bonds surge; euro weaker
* Wall Street set for negative start
By Jeremy Gaunt, European Investment Correspondent
LONDON, Jan 15 (Reuters) - European stocks weakened on
Thursday after the European Central Bank cut interest rates by
an expected 50 basis points while the euro fell against major
currencies and bond prices rose.
World stocks as measured by MSCI <.MIWD00000PUS> were down 1
percent and Wall Street also looked set for a negative start.
Oil traded below $38 a barrel, hit by expectations of weak
demand because of the deteriorating global economy.
The European Central Bank cut its benchmark interest rate by
50 basis points to 2.0 percent, matching its lowest-ever rate.
It was the fourth cut in just over three months, triggered
by signs the financial crisis is biting hard into the real
economy and inflation threatens to fall further below the ECB's
2 percent ceiling.
But the size of the cut disappointed some market players,
who had been hoping the ECB would go further.
"Groans can be heard across the City," said Manoj Ladwa, a
derivatives trader at ETX Capital in London. "Despite things
looking grim in Europe, (ECB President Jean-Claude) Trichet has
stuck to his hawkish stance."
The pan-European FTSEurofirst 300 <> was down around
0.3 percent.
The euro fell against dollar and yen. It was down 0.6
percent against the dollar at $1.3073 <EUR=> and lost 0.4
percent against the yen to 116.85 yen <JPY=>.
"Needless to say that today's rate cut was entirely
justified considering the pace of deterioration in recent euro
zone indicators and marked deceleration in inflation rates. In
fact, a more aggressive 75bp/100bp would have been warranted,"
said Audrey Childe-Freeman, senior currency strategist at Brown
Brother Harriman.
BONDS RISE
Euro zone government bond prices surged.
Two-year paper, which is most sensitive to shifts in
expectations on interest rates, yielded 1.491 percent
<EU2YT=RR>, 3.3 basis points less than in late Wednesday trade
and not far from a euro lifetime low of 1.455 percent plumbed in
the previous session.
Ten-year Bund yields were 4.4 basis points down at 2.899
percent <EU10YT=RR>.
Crude oil prices extended losses, making it easier for
central banks' to cut interest rates because of its benign
effect on inflation.
U.S. light crude for February delivery <CLc1> was down 68
cents at $36.58 a barrel.
Oil was $147 a barrel in July but has toppled as the
economic crisis has sliced into global energy demand. World
consumption is now projected to drop by more than 800,000
barrels per day this year.
(Additional reporting by Dominic Lau and Natsuko Waki)
