* MSCI World stock index falls 3.1 pct
* European shares fall sharply after U.S. and Japan tumble
* Oil hits 13-month low on demand fears
By Sitaraman Shankar
LONDON, Oct 16 (Reuters) - Shares across the world fell for
the second straight day on Thursday, pummelled by signs the
world's biggest economies were headed for recession after a
month of financial sector turmoil.
European stocks fell 3.3 percent early after Wall Street and
Japan's Nikkei both suffered their worst one-day losses since
the stock market crash of 1987, and the MSCI World stock index
<.MIWD00000PUS> traded 3.1 percent lower.
Oil fell $3 a barrel, trading at less than half the record
high of $147 a barrel it hit in July, as fears of a sharp fall
in demand took grip, and the dollar gained as risk-weary
investors sold higher yielding currencies, unwinding carry
trades.
Sharp equity gains on the first two days of the week were
quickly forgotten after dismal U.S. retail sales and the Beige
Book report underlined concerns about the economy. Federal
Reserve Chairman Ben Bernanke said it faced a "significant
threat" from credit markets.
"The whole cliche of Wall Street arriving on Main Street is
so true now, with recession in the U.S., the UK, Europe and
probably Japan, and significant slowing elsewhere," said Bernard
McAlinden, strategist at NCB Stockbrokers in Dublin.
"Things have rapidly changed on the real economy and that
has implications for earnings," he said.
Results are due from handset maker and technology bellwether
Nokia <NOK1V.HE>, eyed for clues as to how a global financial
crisis has hit consumer spending, and later in the day from
Citigroup <C.N> and Merrill Lynch <MER.N>, two banks at the
centre of financial sector ructions.
Bank bailouts by governments across the world and a
concerted rate cut last week have helped unfreeze money markets,
and Switzerland moved on Thursday to provide its two top banks
-- Credit Suisse <CSGN.VX> and UBS <UBSN.VX> -- with billions of
francs in emergency funding.
But any optimism about the stabilisation in money markets
has been swept aside, and reports are trickling in about sharp
losses at hedge funds.
"I think today there is just a combination of uncertainty
and deleveraging in the market," said Amar Gill, head of
thematic research at CLSA in Singapore.
"International funds are pulling back and putting their
money into whatever is safest: Treasuries or cash or paying off
existing debt," he said.
Citadel Investment Group, one of the world's largest hedge
funds, said September was the single worst month in the history
of the company and warned of more volatility in weeks to come.
[]
STEEP LOSSES
The credit market crisis that piled up losses at banks,
froze interbank lending and slowed the economy has taken the
MSCI World index down 43 percent this year.
Benchmark emerging equities <.MSCIEF> plunged 7 percent to
their lowest since July 2005, and emerging sovereign debt
spreads widened by 7 basis points to 587 bps over U.S.
Treasuries <11EMJ>.
U.S. Treasury prices fell slightly, paring some of
Wednesday's sharp gains posted after the weaker U.S. retail
sales data.
The extent of equity falls has prompted talk of more rate
cuts from the world's central banks.
"People said interest rates don't matter because credit
markets are not working. Well, interest rates do matter because
the economy is not working," said NCB's McAlinden, adding that
he expected the Fed to cut later this month.
Fed fund futures show a 46 percent chance of a 50 basis
point cut and a 54 percent chance of a 25 basis point cut.
(Additional reporting by Kevin Plumberg in Hong Kong and
Carolyn Cohn in London)
