* MSCI world equity index down 3.5 pct at 229.64
* Panic selling hits Asian, European bourses and oil
* Yen, gold and European government bonds rise
By Natsuko Waki
LONDON, Oct 10 (Reuters) - Europe joined Asia's panic
selling in stocks on Friday, knocking the benchmark world equity
index to a 5-year trough, while the low-yielding yen jumped as
fears grew that efforts by policymakers are insufficient to
contain the global financial crisis.
Equity trading in Russia, Iceland, Romania, Ukraine and
Indonesia has been halted while nearly half of Milan stocks are
suspended for excessive losses, just hours before finance chiefs
from Group of Seven rich nations meet in Washington.
So far, measures from the United States, Britain and other
countries to fight the worst financial crisis in 80 years --
even this week's coordinated interest rate cuts -- have failed
to calm credit and money markets and quell investor fears.
"The stark reality is that markets have judged the
coordinated interest rates cut not to have been enough, and we
are now left wondering how best to get ourselves out of this
downward spiral," said Chris Hossain, senior sales manager at
ODL Securities.
"One gets the feeling that this market is now strictly
confined to the brave."
MSCI world equity index <.MIWD00000PUS> fell more than 4
percent at one point to a five-year low, losing a fifth of its
value this month alone. The index has lost 43 percent since
January, on track for its worst yearly performance in 20 years.
RELENTLESS SELL-OFF
Japanese stocks <> fell nearly 10 percent for its
biggest one-day percentage loss since 1987. Yamato Life
Insurance, an unlisted midsized insurer, became the first
Japanese financial institution to collapse.
In Japan, investors dumped even domestic government bonds --
considered safer than most other assets -- as fears of
counterparty defaults froze the key repurchase market, prompting
dealers to sell bonds to secure cash.
"This is panic... There's nothing left for us to trust,"
said Takashi Ushio, head of investment strategy at Marusan
Securities.
"Investors are scurrying to convert to cash. A lack of
confidence is coupling with panic."
On Wall street, stocks tumbled for a seventh straight
session on Thursday.
In the European credit market, sentiment deteriorated
sharply with spreads measured by the Crossover index
<ITEX05Y=GF> hitting a fresh high of 720 basis points.
"The market is catching up with the grim reality that this
isn't going to be a mild downturn. The mass leverage that people
have built up over the past decade or more is catching up, and
it's going to be a long and painful process," said James
Hamilton, bank analyst at Numis.
Emerging stocks <.MSCIEF> fell 4.2 percent to a fresh
three-year low while emerging market spreads <11EMJ> widened 10
basis points to trade 556 basis points over U.S. Treasuries.
U.S. crude oil <CLc1> fell 5 percent to a one-year low of
$82 a barrel as fears rose over cooling demand for energy.
The December bund future <FGBLc1> rose 50 ticks as investors
rushed to buy safer government bonds, with yields in other euro
zone countries such as Greece moving as much as 100 basis points
above German counterparts -- considered most liquid.
The yen, which benefits from a surge in risk aversion, rose
half a percent to 99.07 yen <JPY=> while sterling hit a
five-year low of $1.6802 <GBP=> at one point.
The dollar <.DXY> was little changed against a basket of
major currencies.
(Additional reporting by Steve Slater and Rebekah Curtis)
