* MSCI world equity index down 1.1 percent at 341.49
* The index lowest since Oct '06, down 20 pct from Nov peak
* Fannie Mae, Freddie concerns trigger selloff in financials
* Yen up on safe-haven demand, oil rebounds slightly
By Natsuko Waki
LONDON, July 8 (Reuters) - Fresh credit fears swept global
financial markets on Tuesday, pushing world stocks to their
lowest levels since October 2006 as concerns intensified that
the financial sector would have to raise more capital.
Banks tumbled across the board after a Lehman Brothers
report said a pending accounting change could force Fannie Mae
<FNM.N> and Freddie Mac <FRE.N> to raise an $46 billion and $29
billion respectively at a difficult time, knocking their shares
to near 16-year lows on Monday.
In Britain, shares in troubled mortgage bank Bradford &
Bingley <BB.L> fell 20 percent to record lows, below the price
of its planned rights issue, due to concerns over its future.
Fresh worries over the financial sector dealt a blow to
risky assets, which have been already reeling from fears about
rising inflation due to high energy costs and slowing growth.
"The crisis in the financial system, given banks are the
lubricant for the economy, points to continued tight credit,"
said Jonathan Lawlor, head of European research at Fox-Pitt,
Kelton.
"So we have a loop where tight credit leads to slower
economic growth, which leads to higher losses for the financial
system, which leads to capital constraints for the banks."
MSCI main world equity index <.MIWD00000PUS> fell as low as
341.35, down 1 percent, hitting its lowest since October 2006.
The index is down 20 percent from its all-time peak set in
November last year, plunging into bear market territory.
The FTSEurofirst 300 index <> fell 2.5 percent.
SPREADING CRISIS
On Wall Street, the S&P regional bank index <.GSPBK> fell 5
percent to record low on Monday, which Bank of Scotland said
highlighted a key evolution in the unravelling of the 2001-2007
global credit boom.
"Initial focus was on structured products held and marketed
by investment banks and the viability of structured investment
vehicles. Focus going forward is likely to be on the scale of
credit impairments delivered by a deteriorating economic cycle,"
the bank said in a note to clients.
"High levels of leverage extended to both consumers and
investors against a now depreciating asset (housing) alongside
lax lending standards make a rise in default rates... The
epicentre of the crisis therefore shifts from investment to
commercial bank balance sheets."
The yen -- which tends to rise in times of risk aversion
given its low interest rates -- rose 0.4 percent to 106.73 yen
per dollar <JPY=>.
Emerging stocks <.MSCIEF> fell 1.7 percent to its lowest
since January. Emerging sovereign spreads <11EMJ> were steady.
European government bonds drew in safe-haven demand, with
the September Bund future <FGBLU8> up 28 ticks.
U.S. light crude <CLc1> rose 0.3 percent to $141.63 a barrel
having dropped 2.7 percent on Monday. Gold <XAU=> rose to
$928.00 an ounce.
(Additional reporting by Sitaraman Shankar; Editing by Ron
Askew)
