* FTSEurofirst down 1.02 pct, euro slips 0.76 pct
* Wall Street seen opening lower
* MSCI World down 0.68 pct, MSCI EM down 1.38 pct
By Claire Milhench
LONDON, May 20 (Reuters) - Stocks pared early gains on
Thursday as investors fretted about the extension of a short
selling ban to other markets, forcing the euro lower, while
European debt steadied following successful auctions.
Wall Street looked set to open lower.
In early European trades, the FTSEurofirst had advanced
slightly as buyers sought bargains following Wednesday's 3
percent slide.
But by mid-day the modest rally had run out of steam as the
euro zone's underlying problems reasserted themselves and
rumours circulated about an extension of Germany's unilateral
move to ban naked short selling of shares in certain financial
institutions, euro zone sovereign debt and related credit
default swaps. []
The decision has unsettled markets as it points to a lack of
policy coordination amongst European members and has raised
fears of further regulation.[]
"There is a rumour of the short selling ban being extended
in the euro zone," a trader said.
Naked short selling involves selling a financial instrument
without first borrowing the instrument or ensuring that it can
be borrowed, as would be done in a conventional short sale.
MSCI's All-Country World index <.MIWD00000PUS> was down 0.68
percent while its more volatile emerging markets component
<.MSCIEF> was down 1.38 percent.
The FTSEurofirst 300 <> index of top European shares
was down 1.02 percent, but energy stocks were boosted by crude
oil touching $70 a barrel before dipping back to $68.86 <CLc1>.
Earlier, in Japan, the Nikkei <> closed down 1.54
percent, a new three-month low.
BONDS PARE LOSSES
In the fixed income markets, German government bonds pared
earlier losses after successful French and Spanish bond
auctions.
"Financial markets are taking a bit of a pause for breath --
that's taking some of the shine off Bunds but the adverse impact
of fiscal consolidation and the poor performance of risk markets
will help keep Bunds well underpinned near-term," said Nick
Stamenkovic, rate strategist at RIA Capital.
Greek and Portuguese yield spreads over Bunds were broadly
steady, while the cost of insuring against default by issuers
from the euro zone periphery was also steady following the
previous session's volatility.
The euro <EUR=> remained vulnerable, slipping back 0.76
percent to $1.233 in choppy trading, with extreme short
positioning exacerbating moves.
Stuart Thomson, chief economist at Ignis Asset Management,
said he expected the euro to continue falling over the medium
term, reaching parity against the dollar by the end of 2011.
"Politicians have reduced liquidity risk... but in return
have ushered in a new age of austerity in peripheral economies,"
he said in a note.
Higher yielding currencies such as the Australian dollar
<AUD=> came under heavy selling pressure as investors sought
safer havens. "The Aussie is risk-driven and markets are
becoming increasingly risk-averse," said Geoffrey Yu, a currency
analyst at UBS.
The U.S. dollar rose slightly versus a currency basket
<.DXY> to trade at 86.65 on safe-haven demand.
(Additional reporting by Kirsten Donovan, Brian Gorman, Neal
Armstrong; Editing by Ruth Pitchford)
