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World stocks hit fresh lows on bailout

October 03 12:05:02 PM, Yahoo News

Reuters - World stocks fell to a fresh three-year low on Friday as concerns grew that Washington's $700 billion bailout package might not be enough to prevent The U.S. Economy and the rest of the world from slowing down further.

U.S. House democratic leaders are optimistic the revised rescue bill to tackle the financial crisis passed by the Senate will clear the House of Representatives.

Even so, investors worry that recent data, yet to capture the full shock to the labor market and consumer confidence from September's series of bank failures and troubles, is already showing the economy is nearing recession.

Investors also chose to stay on the sidelines ahead of a closely watched U.S. jobs report due later.

"There are plenty of reasons for people not to have bets on the table ahead of the weekend," said Jeremy Batstone-Carr, head of private client research at Charles Stanley.

"The markets are going to be treacherous, we are close to two big hurdles, the last of which (the vote on the bailout) is after markets in Europe close... so it will take a tenacious investor to make an investment on a day like today."

The FTSEurofirst 300 index fell 0.3 percent on the day while MSCI main world equity index lost 0.4 percent, hitting its weakest since July 2005.

According to Standard & Poor's, all 52 world equity markets declined in September, resulting in a $4.1 trillion loss. Since January, world equity markets have lost $10.5 trillion.

The dollar, on track for its biggest weekly gain in 16 years, held near a one-year high against a basket of major currencies.

"Paralysis is spreading across asset markets despite the various attempts by authorities across the globe to shore up confidence," Calyon said in a note to clients.

As a result, investors boosted their bets the Federal Reserve would cut interest rates in October. The majority of them expect a half point cut, while there is a 14 percent chance of an aggressive 75 basis point rate cut.

However, two Federal Reserve officials -- St Louis Federal Reserve Bank President James Bullard and Kansas City Fed chief Thomas Hoenig -- said on Thursday that monetary policy was already easy and inflation still a concern.

Although not voting officials at the Fed some traders said their views could be reflective of those on the rate setting board.

The December bund future rose 10 ticks. Two-year euro zone government bond yield hit a 6-1/2 month low of 3.24 percent, 100 basis points below the benchmark interest rate.

Emerging sovereign spreads widened 8 basis points while emerging stocks lost 1 percent.

U.S. light crude fell half a percent to $93.45 as concerns over consumer demand grew.

Gold rose to $840.40 an ounce.

(Additional reporting by Simon Falush)

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