* World stocks <.MIWD00000PUS> down 0.7 pct to two-month low
* Risk aversion rises on China, Fed, bank regulation, Greece
* Emerging markets <.MSCIEF> down 0.65 pct, risk plays pared
* Greek debt spreads widen to new record, dollar <.DXY> up
By Mike Dolan
LONDON, Jan 27 (Reuters) - Global stock markets fell again
on Wednesday, hitting their lowest in two months as investors
fretted about a monetary squeeze from central banks around the
world and also the impact of tightening U.S. banking regulation.
European markets <> lost 1.5 percent in early trading
and followed a 9th straight loss for Asia stocks <.MIAPJ0000PUS>
on continued reverberations over China's credit tightening this
week.
Investors were also on edge as the U.S. Federal Reserve was
due to end its latest two-day policy meeting later in the day.
While the meeting is expected to yield little in terms of a
near-term policy shift, traders will scour its statement for
clues on when it may wind down its policy of quantitative easing
-- effectively money printing via purchases of bonds.
What is more, the meeting is taking place amid a fierce
Senate debate over whether Chairman Ben Bernanke should be
appointed for a second term, another factor weighing on investor
confidence this week.
There were also concerns about the intensifying regulatory
backlash against U.S. and global banks, captured by U.S.
President Barack Obama's latest proposals to limit the size of
banks, their proprietary trading and their links to hedge funds.
"There are worries about the Fed phasing out quantitative
easing," said Bernard McAlinden, investment strategist at NCB
Stockbrokers. "There are also still worries about Obama's plans
for banks, and Chinese growth."
"We're well into a major correction now, and this is about
as big as most corrections get. The outlook is for some sideways
trading," he said.
Banks continued to fuel the heat of the market retreat.
Spain's second-largest bank, BBVA <BBVA.MC> fell 4 percent
after posting a 16.1 percent decline in 2009 net profit to 4.21
billion euros ($5.9 billion) as the impact of the global
downturn forced it to make more provisions.
Other banks to fall included BNP Paribas <BNPP.PA>, Banco
Santander <SAN.MC>, Barclays <BARC.L>, Deutsche Bank <DBKGn.DE>
and UBS <UBSN.VX>, down between 1.5 and 2.6 percent.
U.S. stocks slipped late on Tuesday due to trepidation over
churning political and regulatory developments, offsetting solid
earnings and improved consumer confidence data.
The S&P 500 <.SPX> closed 0.4 percent lower and futures
prices <SPHO> pointed to a resumption of the decline later.
ASIA, EMERGING MARKETS RATTLED
Risk aversion everywhere was heightened by regulatory
concerns, China tightening, the Fed meeting and sovereign debt
worries in Greece and elsewhere.
The premium investors demand to hold 10-year Greek
government bonds rather than benchmark German Bunds jumped to a
euro lifetime high after the Greek finance ministry said there
was no deal to sell bonds to China.
Ten-year Greek bonds yielded as much as 332 basis points
over German Bunds, up 28 basis points on the day, after the
comments denying press reports Greek planned to sell about 25
billion euros of its debt to China. []
"They've denied the China sale story and that was the only
thing that was keeping the market in," said a trader in London.
Emerging market stocks <.MSCIEF>, meantime, dropped 0.65 pct
to two-month lows.
The dollar <.DXY> rose 0.2 percent and the yen gained
broadly on Wednesday as investors shied from riskier assets.
"Concerns over China and Greece are still in the background.
The uncertainty all this suggests is likely to keep risk on the
back foot," said Gavin Friend, currency strategist at National
Australia Bank.
"Equities have further to go on the downside and the period
of pessimism can continue."
By 0930 GMT, the euro <EUR=> was down slightly against the
dollar at 1.4050 and was down 0.5 percent at 125.50 yen
<EURJPY=R> after hitting a 9-month low of 125.25 yen earlier.
Euro zone government bonds yields <EU10YT=RR> were flat.
(Additional reporting by Brian Gorman, Kevin Yao and Tamawa
Desai; Editing by Ruth Pitchford)
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
Blog click on http://blogs.reuters.com/macroscope; for Hedge
Hub click on http://blogs.reuters.com/hedgehub)
