* MSCI world equity index down 0.4 percent at 336.93
* Investors dump oil, other commodities on slowdown fears
* Dollar hits seven-week high, Australian dollar slumps
By Natsuko Waki
LONDON, Aug 5 (Reuters) - Evidence of a global economic
slowdown prompted investors to dump oil and other commodities on
Tuesday, boosting the dollar to a seven-week high while they
pushed world stocks to a three-week low.
Benchmark oil prices fell 1 percent at one point after
slipping below $120 a barrel on Monday for the first time in
three months. Oil is down nearly $27 from its record highs in
mid-July.
Other commodity prices fell in tandem. Gold hit a six-week
low, platinum dropped to six-month troughs and soybeans hit
their weakest in three months.
"Slower international economic growth has raised some
worries about demand for individual commodities," said David
Moore, analyst at Commonwealth Bank of Australia in Sydney.
"With oil prices having retreated and the U.S. dollar having
partially recovered, investment interest in gold seems to have
waned somewhat."
U.S. crude <CLc1> stood at $120.25 a barrel. Gold fell to
$887.75 <XAU=>.
Tuesday's fall came after broader commodity prices <.CRB>
posted their biggest monthly decline in at least 10 years last
month.
"The last commodity sell-off of this magnitude in March 1980
unfortunately did little to the severe 1980 and 1981/1982
recessions," Lehman Brothers said in a note to clients.
"Nonetheless, this commodity sell-off may help corral the
disconcerting inflation pulse of the past year and eventually
allow central banks the luxury of again easing to help stimulate
economic activity."
MIXED EFFECT ON STOCKS
Tumbling commodities had a mixed effect on equities. While
falling resource prices ease inflation pressures and lessen the
burden for corporates and consumers, commodity shares such as
Rio Tinto <RIO.L> and BP <BP.L> tumbled.
The FTSEurofirst 300 index <> managed to rise 0.2
percent on the day while the MSCI main world equity index
<.MIWD00000PUS> was down 0.4 percent.
The dollar rose broadly against a basket of major currencies
<.DXY> while the Australian dollar fell to a four-month low of
US$0.9206 <AUD=> after the country's central bank opened the
door for cutting interest rates.
The key event of the day is an interest rate decision by the
Federal Reserve. The Fed is likely to leave interest rates on
hold at 2.00 percent until December when investors expect the
central bank to hike the cost of borrowing <FEDWATCH>.
However, policymakers could decide to leave rates on hold
for longer given easing price pressures and slowing growth.
"The tug-of-war between upside risks to inflation and
downside risks to growth will persist in the coming quarters. In
our opinion the growth outlook will remain too troublesome to
allow the FOMC to hike interest rates anytime soon," Peter
Possing Andersen, senior analyst at Danske Bank, said in a note.
Emerging sovereign spreads <11EMJ> widened 1 basis point
while emerging stocks <.MSCIEF> fell 1.2 percent.
The September Bund future <FGBLU8> was steady on the day.
(Editing by Mike Peacock)
