* MSCI world equity index down 0.25 percent at 332.01
* 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 hMae <FNM.N> and
Freddie Mac <FRE.N> stock on fears of an imminent government
bailout, knocking the shares to their lowest in nearly 20 years.
Reports about major banks kept alive general financial
sector concerns -- The 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.
"It's continued worries from the U.S. that are feeding in
over here," said Howard Wheeldon, senior strategist at BGC
Partners. "There is no reason for any air of confidence to
appear over the next 24 hours."
The FTSEurofirst 300 index <> fell 0.8 percent while
the MSCI main world equity index <.MIWD00000PUS> lost a quarter
percent. Wall Street was set for a weak open with U.S. stock
futures falling around 0.5 percent <SPc1>.
Asian shares outside Japan <.MIAPJ0000PUS> fell 1.8 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 allay
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 RALLY HALTED
The dollar <.DXY> fell 0.3 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 evidence
mounted that growth outside the United States was deteriorating
fast.
A survey this week showed business activity in the euro zone
unexpectedly stabilised at weak levels in August, while the
plunge in crude oil eased inflationary pressure, but analysts
said the broader picture of euro zone malaise held good.
"In the medium term ... the numbers do not alter the
prospect of sluggish growth in the euro zone throughout the
second half of the year," said Stuart Bennett, senior FX
strategist at Calyon.
Emerging sovereign spreads <11EMJ> hit their highest levels
in a month before steadying, while emerging stocks <.MSCIEF>
fell 1.2 percent towards this week's one-year low.
"International politics aren't helping -- the
Georgian-Russian situation looks as if it could rumble on for
months and possibly even drag other central European countries
along," said Nigel Rendell, emerging markets strategist at RBC.
"Investors are also unsure about the health of the financial
system and many still think there's something nasty lurking in
the woodshed."
Concerns over Russia, which expressed its displeasure over a
U.S.-Poland defence pact, as well as a weak dollar aided U.S.
light crude <CLc1>, which rose 1.4 percent to $117.16 a barrel.
Oil prices are still around $30 below their record peak in
July. Gold <XAU=> rose to $823.80.
The September Bund future <FGBLU8> fell 15 ticks as
investors locked in profits on recent gains.
(Additional reporting by Dominic Lau and Carolyn Cohn, editing
by Mike Peacock)
