* MSCI world equity index down 0.7 pct at 236.74
* European stocks fall after unexpected drop in services PMI
* Oil falls below $67 a barrel on econ worries, yen firmer
By Natsuko Waki
LONDON, June 23 (Reuters) - Europe extended a global slide
in equities and oil on Tuesday while the low-yielding yen hit a
three-week high against the dollar as investors grew concerned
about the prospect for global economic recovery.
U.S. stocks suffered their worst one-day loss in two months
on Monday, dropping the S&P 500 index <.SPX> back into negative
territory for the year, after economically sensitive sectors
such as financials, energy and materials fell broadly.
Data highlighted the fragile state of Europe's economy.
French consumer spending fell unexpectedly last month, and a
recovery stalled in the euro zone's dominant service sector with
an unexpected fall in the region's services purchasing managers
index.
Euro zone manufacturers fared better however, with that
sector's PMI rising to its highest level since September.
"Equity markets are poised to see another bout of selling
... with continued scepticism over this concept of green shoots
of recovery dominating trader sentiment," said Matt Buckland,
dealer at CMC Markets.
MSCI world equity index <.MIWD00000PUS> fell 0.7 percent,
hitting a one-month low. World stocks are up just 4 percent this
year.
The FTSEurofirst 300 index <> was down 0.4 percent in
volatile trade.
Defensive sectors, such as utilities <.SX6P> and health care
<.SXDP>, were the major gainers in Europe, reflecting investor
preference for gradually increasing equity exposure after being
underweight for the past year or so.
Emerging stocks <.MSCIEF> lost 2.3 percent.
U.S. crude oil <CLc1> fell 0.9 percent to $66.89 a barrel.
"Optimism over the prospects of economic recovery have
already been factored into equity and commodity markets, so now
people are standing back and reassessing," Ben Westmore,
commodities analyst at the National Australia Bank.
The September Bund future <FGBLc1> was steady on the day.
YEN RESURGENT
The low-yielding yen, which benefits from increased risk
aversion, rose 0.8 percent to 95.22 per dollar <JPY=>, having
hit a three-week high earlier.
The dollar <.DXY> fell 0.1 percent against a basket of major
currencies ahead of the Federal Reserve's monetary policy
decision after a two-day meeting on Wednesday.
Investors expect the Fed to keep interest rates near zero
while they are split on whether the Fed will expand its existing
$300 billion plan to purchase Treasuries.
"At this early and fragile stage in what appears an
improving backdrop, the Fed would not want to be blamed for
giving false hope by being a cheerleader at this point," RBC
Capital Markets said in a note to clients.
"Seeing as they have run through about half their current
allotment of ammunition for Treasury purchases, and at the
current pace they would use it all up by around late August,
this would certainly seem like a good opportunity to address
their future intentions."
Moody's Investors Services said the United States' triple-A
ratings could come under threat if Washington were unable to
bring its public debt back to a downward trajectory and/or if
the dollar were severely challenged as the main international
reserve currency.
(Editing by Mike Peacock)
