* MSCI world equity index down 1 percent at 329.65
* Weaker-than-expected Ifo, grim news from banks weigh
* Dollar hits 2008 peak, high-yielding currencies sold off
By Natsuko Waki
LONDON, Aug 26 (Reuters) - World stocks hit their lowest
level in almost two years on Tuesday as a worsening German
business mood and fresh concerns about financial firms triggered
a sell-off in risky assets, lifting the dollar to a 2008 high.
The Munich-based Ifo economic research institute's business
climate index fell to 94.8 this month from 97.5 in July, below
the 97.1 forecast, adding to evidence that growth outside the
United States is slowing and accelerating the euro's tumble.
"This does not bode well for the second half of the year.
The probability of a recession has risen," said Antje Hansen,
economist at HSBC Trinkaus.
The FTSEurofirst 300 index <> fell 0.6 percent while
the MSCI main world equity index <.MIWD00000PUS> lost as much as
1 percent to its lowest since September 2006, bringing
year-to-date losses to more than 18 percent.
However, U.S. stock futures rose a quarter percent <SPc1>,
pointing to a firmer open on Wall Street after major indexes
fell 2 percent on Monday.
The September Bund future <FGBLU8> was up 17 ticks, while
euro zone interest rate futures <0#FEI:> also firmed as
investors priced in an interest rate cut in the region.
Investors have been deluged with grim news from the
financial sector this week.
JP Morgan <JPM.N> has said the market value of its
investments in preferred stock of U.S. mortgage lenders Fannie
Mae <FNM.N> and Freddie Mac <FRE.N> has halved this quarter.
Hopes for South Korean investment in Lehman Brothers <LEH.N>
have taken a hit after the country's top regulator voiced
concern on Monday about a state-run lender's interest in the
bank.
And the Danish central bank's move to bail out Roskilde Bank
<ROSK.CO> on Monday followed the collapse of Columbian Bank and
Trust late last week, the ninth U.S. bank to fail this year.
DOLLAR SURGES
The dollar was the major beneficiary from renewed strains in
the financial market, hitting its highest for this year against
a basket of major currencies <.DXY> and a new six-month high
beyond $1.46 per euro <EUR=>.
Sterling fell to a two-year low below $1.84 <GBP=>. The
high-yielding Australian and New Zealand dollars fell more than
1 percent against the U.S. currency.
While the epicentre of the one-year-old credit crisis lies
in the United States, investors eyed worsening growth elsewhere.
The euro zone and Japan have already moved halfway into
recession after their economies contracted in the second quarter
while the British economy failed to grow at all in the same
period.
"Problems in the U.S. financial market are leading to equity
market weakness which is the principal driver hitting the high-
yielding currencies," said Daragh Maher, deputy head of global
foreign exchange research at Calyon.
A G20 finance official told Reuters on Monday that the
International Monetary Fund has trimmed its world economic
growth forecasts for this year and next, largely due to a marked
worsening in its outlook for the euro zone.
Emerging sovereign spreads <11EMJ> widened 1 basis point
while emerging stocks <.MSCIEF> fell 1.5 percent on the day.
Russia's benchmark RTS share index <> fell more than 6
percent after President Dmitry Medvedev recognised Georgia's
rebel regions of South Ossetia and Abkhazia as independent.
U.S. light crude <CLc1> fell 1.4 percent to $113.41 a barrel
as the dollar surged. Gold <XAU=> fell to $819.00 an ounce.
(Additional reporting by Simon Falush; Editing by Gerrard
Raven)
