* MSCI world equity index ticks down to 310.17
* Asian stocks down, Europe mixed as bailout eyed
* Money markets still stressed; dollar falls broadly
By Natsuko Waki
LONDON, Sept 25 (Reuters) - World stocks steadied, the
dollar fell across the board and the cost of borrowing dollars
in the money market remained high on Thursday as anxiety over a
$700 billion bailout for the U.S. financial system persisted.
Stocks fell in Asia, while European bourses were mixed with
investors on tenterhooks as negotiation on the U.S. government
plan dragged on.
Congress looked close to reaching a deal on the rescue
package to tackle the worst financial crisis since the Great
Depression and President George W. Bush has called an emergency
meeting to hammer out details.
But even if the bailout is passed, investors were unsure how
that would prevent the U.S. economy from slowing further after
this month's turmoil led to the collapse of Lehman Brothers
collapse and the bailout of Fannie Mae, Freddie Mac and AIG.
"There is still uncertainty about U.S. Treasury's bail out
phase. There needs to be quick action, it is important that
investors know what is going to be done about it as the
alternatives are too dire," said Bernard McAlinden, market
strategist at NCB Stockbrokers.
The pan-European FTSEurofirst 300 index <> rose 0.4
percent, while shares in London <> and Asia <.MIAP0000PUS>
fell.
MSCI main world equity index <.MIWD00000PUS> was slightly
lower on the day. U.S. stock futures <SPc1> fell around a
quarter percent.
TENSIONS
As negotiation dragged on, tensions persisted in the money
market even as central banks injected billions of dollars of
liquidity to keep the interbank system afloat.
In early European trading, three-month interbank dollar
deposit rates were indicated at a 4.29-5.29 percent range
<USD3MD=>, at least 225 basis points above the Federal Reserve's
benchmark interest rate of 2 percent.
The closely-watched TED spread -- or the difference between
market-based dollar rates and three-month U.S. government
borrowing rates -- fluctuated in a range of 300 and 420 bps.
The spread ballooned last week to almost 500 bps, the widest
in over a quarter of a century.
"It is quite remarkable that even though the money markets
have been seized up for nearly a fortnight, there has been no
further major failure of a financial institution -- despite
immense and practically unprecedented stresses," Morgan Stanley
said in a note to clients.
"This in itself might be seen as evidence of the system's
improved ability to withstand shocks, or at least of the central
banks' improved response, and may therefore eventually become a
source of renewed confidence."
The dollar <.DXY> fell 0.6 percent against a basket of major
currencies while the euro rose 0.7 percent to $1.4713 <EUR=> as
doubts emerged as to how to finance the rescue package and
concerns grew over the economy.
In their testimonies this week, Federal Reserve Chairman Ben
Bernanke and Treasury Secretary Henry Paulson warned of major
damage to the economy and the financial system if Congress did
not move quickly on the bailout.
"They had to talk (down the economy) in a way they haven't
done in the last couple of months to explain why they want to
spend all this money and that has put some pressure on the
dollar," said Lutz Karpowitz, FX strategist at Commerzbank.
The December Bund future <FGBLc1> fell 24 ticks.
Emerging sovereign spreads <11EMJ> tightened 2 basis points
while emerging stocks <.MSCIEF> fell 0.6 percent.
U.S. light crude <CLc1> rose 0.3 percent, helped by a weaker
dollar. Gold <XAU=> rose to $891.65 an ounce.
(Additional reporting by Simon Falush, editing by Mike Peacock)
