* MSCI world equity index down 0.49 percent at 333.56
* Oil's retreat, SEC rule fail to wipe out financial jitters
* Dollar holds around a cent away from record lows vs euro
(Adds quotes, updates prices)
By Natsuko Waki
LONDON, July 16 (Reuters) - World stocks fell towards this
week's 21-month low and the dollar approached a record low
versus the euro on Wednesday as investors nursed acute worries
about the financial sector.
U.S. crude oil fell further after posting its biggest
one-day drop on Tuesday since 1991, when prices tumbled at the
start of Operation Desert Storm.
But any support for risky assets quickly evaporated as
investors started selling bank and other stocks, fearing 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.
"We've had the problems in the United States with IndyMac
and Freddie and Fannie, so plenty of news but nothing very
specific on policy that is addressing the core issues," said
Colin McLean, managing director of SVM Asset Management in
Edinburgh.
This week's U.S. bailout plan for mortgage giants Fannie Mae
<FNM.N> and Freddie Mac <FRE.N> and an emergency U.S. rule on
Tuesday to limit certain types of short selling in financial
firms also failed to stem selling.
The FTSEurofirst 300 index <> was down 1.4 percent
while MSCI main world equity index <.MIWD00000PUS> fell 0.5
percent on the day, inching closer to the previous day's low.
U.S. stock futures <SPc1> were pointing to a weaker open on
Wall Street later.
ON KNIFE EDGE
The dollar was down 0.1 percent to $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, which aims to clamp down on market
manipulation that some blame for the sharp declines in financial
stocks, 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 bond spreads <11EMJ> widened 1 basis
point while emerging stocks <.MSCIEF> fell 0.5 percent to hit a
new low for 2008.
The September Bund future <FGBLU8> rose 25 ticks,
underpinned by investor jitters over the economy.
U.S. light crude <CLc1> was down 1.4 percent to $136.76 a
barrel after dropping as low as $135.92. Gold <XAU=> ticked
higher to $974.40 an ounce.
(Additional reporting by Veronica Brown, Blaise Robinson and
Toni Vorobyova; Editing by Ruth Pitchford)
