* MSCI world equity index down 0.44 percent at 333.71
* Oil's retreat, SEC rule fail to wipe out financial jitters
* Wells Fargo helps sentiment, US CPI fans inflation worry
* Dollar around 1-1/2 cent away from record lows vs euro
(Updates with Wells Fargo and CPI data)
By Natsuko Waki
LONDON, July 16 (Reuters) - World stocks fell towards this
week's 21-month low and the dollar held near a record low versus
the euro on Wednesday as investors nursed acute worries about
the financial sector and the economy.
Wall Street was set for a steady start, following the
previous day's battering, after Wells Fargo <WFC.N> -- the
fifth-largest U.S. bank -- posted better-than-expected quarterly
results.
Concerns about global inflation, driven by surging food and
energy prices, intensified after data showed U.S. consumer
prices rose at the fastest pace since 1982 in June.
However, the volatile U.S. crude oil price extended its
slide after posting its biggest one-day drop on Tuesday since
1991, when prices tumbled at the start of Operation Desert
Storm.
Worries about a negative mix of slowing growth and rising
inflation grew after Federal Reserve chief Ben Bernanke said the
economic and inflation outlook was unusually uncertain and
financial markets remained under considerable stress.
"It really puts the Fed in a hole. The policy dilemmas are
greatly increased. The core increase is not likely to be
repeated. But we have to get used to the idea of 5 percent
headline inflation," said Alan Ruskin, chief international
strategist at RBS Greenwich in Connecticut.
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 percent while
MSCI main world equity index <.MIWD00000PUS> fell 0.4 percent on
the day, inching closer to the previous day's low.
U.S. stock futures <SPc1> erased early losses after Wells
Fargo's results and data which showed the U.S. consumer prices
index rose 1.1 percent on the month and at an annual pace of 5.0
percent <ECON>.
After the data, investors moved to price in a higher chance
of a U.S. interest rate hike this year, with futures showing
implied prospects of 54 percent compared with 44 percent
previously.
ON KNIFE EDGE
The dollar was steady at $1.5894 <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> was steady, underpinned
by investor jitters over the economy.
U.S. light crude <CLc1> was down 0.6 percent to $137.87 a
barrel after dropping as low as $135.92. Gold <XAU=> ticked
higher to $974.40 an ounce.
(Additional reporting by Toni Vorobyova; Editing by Ruth
Pitchford)
