* MSCI world equity index down 0.3 percent at 331.90
* Financial sector concerns, higher oil weigh
* Dollar falls vs majors, edges away from 7-month peak
By Natsuko Waki
LONDON, Aug 21 (Reuters) - World stocks and the dollar fell
on Thursday after concerns grew about the fate of U.S. mortgage
firms and the health of the broader financial sector, while a
weak dollar helped oil and commodities extend rebound.
On Wednesday, investors dumped Fannie Mae <FNM.N> and
Freddie Mac <FRE.N> on fears of an imminent government bailout,
knocking the shares to their lowest in nearly 20 years.
Reports on major banks kept alive general financial sector
concerns. Wall Street Journal said the Federal Reserve called
Credit Suisse <CSGN.VX> last month to see if it had pulled a
credit line from Lehman Brothers <LEH.N>, while the Financial
Times reported both Chinese and Korean investors walked away
from a possible deal to buy Lehman shares.
Oil prices rose above $116 a barrel, renewing inflation
concerns.
"Inflation fears are back, on top of worries surrounding the
fate of Freddie Mac and Fannie Mae, fears of additional
writedowns, etc. etc. People are getting nervous again," said
Rik Zwaneveld, trader at AFS Brokers, in Amsterdam.
The FTSEurofirst 300 index <> fell 1.2 percent while
the MSCI main world equity index <.MIWD00000PUS> lost 0.3
percent.
Asian shares outside Japan <.MIAPJ0000PUS> fell 1.6 percent.
Financial sector concerns are also intensifying in
Australia, where investment firm Babcock & Brown <BNB.AX>
replaced its chief executive and chairman but failed to ally
concerns about the future, sending its shares to a record low.
Babcock stock has slumped more than 90 percent this year as
worries about its debt-funded investment model intensified due
to the credit crisis.
DOLLAR STEPS BACK
The dollar <.DXY> fell half a percent against a basket of
major currencies, edging further away from this week's
seven-month high.
The U.S. currency has rallied in recent weeks as
expectations grew that growth outside the United States is
deteriorating fast.
"We view recent gains in the U.S. dollar as sustainable,"
UBS said in a note to clients.
"Against the backdrop of housing market-related concerns,
worsening growth expectations outside the U.S., the outlook for
yields, soft commodity prices and strong capital flows are all
dollar-supportive."
Emerging sovereign spreads <11EMJ> widened 1 basis point
while emerging stocks <.MSCIEF> fell 1 percent towards this
week's one-year low.
The September Bund future <FGBLU8> rose 14 ticks, drawing in
safe-haven demand.
U.S. light crude <CLc1> a barrel rose 0.9 percent at $116.68
a barrel as supply concerns rose after Russia expressed its
displeasure over a U.S.-Poland defence pact. Gold <XAU=> rose to
$823.80.
(Additional reporting by Blaise Robinson; Editing by
Victoria Main)
