GLOBAL MARKETS-Stocks, dollar slip; oil resumes rise

Thu Aug 7, 2008 3:53am EDT

* MSCI world equity index down 0.1 pct at 344.85

* Financial sector results disappoint; eyes on ECB and BoE

* Dollar slips from seven-week high as oil resumes rise

By Natsuko Waki

LONDON, Aug 7 (Reuters) - World stocks slipped on Thursday as disappointing results from major insurers raised concerns about the economic impact from the credit crisis ahead of key interest rate verdicts from the euro zone and Britain.

Oil halted its steep slide from July's record high, which benefited inflation-sensitive currencies such as the euro against the dollar. American International Group , the world's largest insurer, posted its third consecutive quarterly net loss of more than $5 billion on Wednesday as it wrote down bad mortgage-related investments.

The situation is no better in Europe. The region's biggest insurer Allianz abandoned its profit targets on Wednesday, saying new guidance was impossible given financial market turmoil.

While other results from Barclays and AXA were better than many had feared, investors grew nervous that the damage from the one-year-old credit crisis on financial firms is far from over.

However, central banks have almost no room to cut interest rates to boost growth, given inflationary pressures. Both the European Central Bank and Bank of England are expected to leave the cost of borrowing unchanged later on Thursday.

"ECB President (Jean-Claude) Trichet will express concerns about wage growth and the risk of second-round effects," said Riccardo Barbieri, head of rate strategy at Bank of America.

"However, we believe Mr Trichet will also say or hint that the ECB has no bias at this stage and acknowledge the worsening in several euro zone economic indicators."

The FTSEurofirst 300 index fell 0.3 percent while the MSCI main world equity index .MIWD00000PUS was down around 0.1 percent.

The dollar slipped from Wednesday's seven-week highs against a basket of major currencies .DXY. Inflation-sensitive currencies, such as the euro and sterling, rose versus the U.S. currency as oil steadied.

The September Bund future FGBLU8 was flat on the day.

EMERGING REVERSAL?

Emerging sovereign spreads 11EMJ widened 1 basis point while emerging stocks .MSCIEF outperformed their developing counterparts, holding steady on the day.

U.S. light crude CLc1 rose 0.4 percent to $119.06 a barrel, having tumbled from record highs above $147 hit in July. Gold also edged higher to $883.95 an ounce.

Oil and commodity prices steadied after staging its biggest monthly fall in at least 10 years in July, based on Reuters-Jefferies CRB index .CRB.

"If commodity prices continue to move lower -- and inflation risks recede -- the next stage may be a broader decline in rates paths in the emerging market universe, where tightening has been ongoing," Goldman Sachs said in a note to clients.

"Trades that focus explicitly on non-U.S. OECD weakness may provide a better risk-reward. If oil and inflation relaxation extend, active investors may continue to find themselves mis-positioned at the sector level." (Editing by Mike Peacock)