* Global stocks fall on Germany's short-selling ban
* Euro rallies after earlier slumping to 4-year low
* Bond prices rise as stock slide revives safety bid
* Oil drops to $69 a barrel on higher U.S. stockpiles
(Updates with close of European markets)
By Herbert Lash
NEW YORK, May 19 (Reuters) - The euro rallied strongly on
speculation it had hit a short-term bottom on Wednesday but
equity markets fell worldwide after Germany's move to ban some
naked short sales of stocks and bonds unsettled investors.
Despite a 1.0 percent bounce in the euro, assets perceived
as being risky fell in price as concerns the German ban
heralded tighter financial regulation, boosting risk aversion.
The euro EUR= was up 1.20 percent at $1.2326.
European stocks hit their lowest closing level in nearly
two weeks. They were dragged down by banking shares as
Germany's decision to outlaw naked short selling, or shorting
assets without borrowing them first, raised concerns other
countries might follow suit. For details see: ID:nLDE64I227
Key euro and U.S. dollar inter-bank lending rates pushed
higher while crude oil slid below $69 a barrel. Gold prices
shed more than 2 percent and industrial metals fell. For
details see: ID:nLDE64I0IR ID:nLDE64I0SL ID:nLDE64I0QF
German Chancellor Angela Merkel said the European Union
would introduce its own financial transaction tax or levy if
the Group of 20 nations failed to reach a deal in June.
ID:nSGE64I073
"The markets never like governments interfering in what
they regard as the efficient running of markets," said Bill
McNamara, an analyst at Charles Stanley in Sweden. "It just
doesn't settle the nerves in the way politicians seem to think
it will. Investors should continue to expect high levels of
volatility."
The MSCI all-country world equity index .MIWD00000PUS was
down 1.9 percent, while the more volatile emerging markets
index .MSCIEF fell 3.3 percent.
The FTSEurofirst 300 index .FTEU3 of top European shares
ended almost 3.0 percent lower at 996.38 points.
U.S. stocks also fell on Germany's short sale ban, fueling
investor worries about exposure to riskier assets and about the
global economy. Shares of industrial companies, which tend to
rely heavily on overseas sales, led losses.
The Dow Jones industrial average .DJI was down 108.60
points, or 1.03 percent, at 10,402.35. The Standard & Poor's
500 Index .SPX was down 11.57 points, or 1.03 percent, at
1,109.23. The Nasdaq Composite Index .IXIC was down 29.21
points, or 1.26 percent, at 2,288.05.
Market talk on potential meetings or action by the European
Central Bank or even that Greece would consider leaving the EU
pushed the euro higher after it earlier slipped to a four-year
low. The bounce was tempered as the Greek government
ID:nATH005489 strongly denied rumors concerning EU and euro
zone membership.
"There are rumors flying around this morning, and traders
clearly are having jitters. That's typical when the market is
on tenterhooks," said Matthew Strauss. senior currency
strategist at RBC Capital Markets in Toronto.
Oil fell below $69 a barrel in volatile trade, pressured by
high U.S. stockpiles and as Germany's short sale ban.
Weekly inventory data from the U.S. Energy Information
Administration showed a smaller than forecast 200,000 barrel
rise in crude stocks, a surprise decline in distillates and a
smaller than forecast drop in gasoline. EIA/S
It also showed crude stored at the delivery hub for U.S.
futures contracts in Cushing, Oklahoma, hit a new record high.
U.S. light sweet crude oil CLc1 fell 74 cents to $68.67 a
barrel.
U.S. Treasuries prices rebounded from early losses to
resume their advance as the slide in stocks revived investors'
appetite for safe-haven U.S. government debt. ID:nN19430562
The benchmark 10-year U.S. Treasury note US10YT=RR was up
4/32 in price to yield 3.34 percent.
"European equity markets got completely hammered and the
Greek and Spain sovereign debt spreads widened again and that
all helped feed the risk aversion bid into Treasuries, despite
the small correction in the euro," said John Canavan, analyst
at Stone & McCarthy Research Associates in Princeton, New
Jersey.
The dollar was down against a basket of major currencies,
with the U.S. Dollar Index .DXY off 0.64 percent at 86.608.
Against the yen, the dollar JPY= was down 0.75 percent at
91.43.
Spot gold prices XAU= fell $30.45 to $1,190.20 an ounce.
The MSCI index of Asia-Pacific shares outside of Japan
.MIAPJ0000PUS dropped 3.3 percent, while Japan's Nikkei average
.N225 closed down 0.5 percent, its weakest finish in 11 weeks.
(Reporting by Nick Olivari and Ellen Freilich in New York and
Alex Lawler and Jan Harvey in London; Writing by Herbert Lash;
Editing by Andrew Hay)
