* MSCI world equity index up 0.03 percent at 335.30
* Oil's sharp retreat, SEC rule on short selling calm nerves
* Dollar holds around a cent away from record lows vs euro
By Natsuko Waki
LONDON, July 16 (Reuters) - World stocks stabilised on
Wednesday above a 21-month low while the dollar held near a
record trough versus the euro after a sharp fall in oil prices
helped calm investor nerves over the financial sector.
Oil posted its biggest one-day drop on Tuesday since 1991
when prices tumbled at the start of Operation Desert Storm. This
helped support investor sentiment battered by concerns that the
credit crisis could spur more bank failures.
Such fears, prompted by troubles in U.S. mortgage firms,
intensified after Federal Reserve chief Ben Bernanke said
financial markets remained under considerable stress and the
economic and inflation outlook was unusually uncertain.
Selling pressures on risky assets eased somewhat after U.S.
securities regulators issued an emergency rule on Tuesday to
limit certain types of short selling in major financial firms in
the latest effort to clamp down on market manipulation that some
blame for the sharp declines in financial stocks.
"Technical bounces might occur but we have seen over the
last couple of weeks there have been a lot of invitations to do
that... I would not be too optimistic that this will be a really
big relief rally," said Gerhard Schwarz, head of global equity
strategy at UniCredit.
"The outlook for the financial space remains bleak. The
situation is certainly still very much stretched and we have
seen that there is no quick fix for that."
The FTSEurofirst 300 index <> was up 0.2 percent while
MSCI main world equity index <.MIWD00000PUS> was steady on the
day, holding just above the previous day's low.
The dollar stood at $1.5935 <EUR=> per euro after falling as
low as $1.6038 on Tuesday.
The rule on short selling issued by the U.S. Securities and
Exchange Commission will go into effect on Monday, July 21.
"This SEC story is something that the market is focusing on,
and if it actually proved successful in stabilising the
financials, it will also help stabilise the dollar," said Paul
Mackel, strategist at HSBC.
"But the dollar is still on a knife edge and the sentiment
is still very, very poor."
Emerging sovereign spreads <11EMJ> tightened 1 basis point
while emerging stocks <.MSCIEF> fell 0.15 percent.
The September Bund future <FGBLU8> rose 5 ticks, underpinned
by investor jitters over the economy.
U.S. light crude <CLc1> fell a quarter percent to $138.38 a
barrel after dropping as low as $135.92, posting its biggest
one-day drop since 1991 when prices tumbled at the start of
Operation Desert Storm.
Gold <XAU=> ticked higher to $974.30 an ounce.
(Additional reporting by Amanda Cooper and Toni Vorobyova)
