GLOBAL MARKETS-Stocks plunge, yen leaps as credit fears dominate

* MSCI world equity index down 3.2 pct at 274.28

* Oil, emerging stocks also tumble as credit fears escalate

* Government bonds, gold, low-yielding yen soar

By Natsuko Waki

LONDON, Oct 6 (Reuters) - World stocks plunged to three-year lows on Monday as investors fled to government bonds, gold and the low-yielding yen, fearing policymakers' efforts to contain the credit crisis might not be enough to prevent a recession.

Oil fell 4 percent to 8-month troughs while emerging stocks tumbled 6 percent as the worst financial crisis in 80 years spread in Europe, where more governments were forced to offer bank deposit guarantees due to a growing number of bank failures.

Panic selling of shares in Russia prompted two stock exchanges to halt trading while some banking shares in Iceland and Italy were also suspended.

In South Korea, banks were having trouble raising foreign currency funds and the government promised to give banks access to the country's foreign exchange reserves, the world's sixth largest at nearly $240 billion.

Despite weeks of huge liquidity injection by central banks, money markets remained tight, reflecting deep reluctance by banks to lend to each other. "We have a seriously weak and fear-driven market on our hands," said Tom Hougaard, chief market strategist at City Index.

The FTSEurofirst 300 index fell 5.3 percent while MSCI main world equity index .MIWD00000PUS lost 3.2 percent to its weakest level since May 2005. The index has shed 31 percent since January.

U.S. stock futures fell 2.5 percent SPc1, indicating a sharply lower opening on Wall Street later.

A flurry of measures by countries around the world is doing little to calm investor nerves. Germany, Austria and Denmark followed Ireland in guaranteeing private deposit accounts after European leaders failed to agree a concrete common rescue scheme at a weekend meeting in Paris.

Leaders from France, Britain, Italy and Germany and European Central Bank President Jean-Claude Trichet promised to take all steps needed to ensure financial stability and to coordinate.

The emergency summit came as the U.S. government enacted a landmark $700 billion bank bailout on Friday.

"The arctic credit ice thickens. (Various) governments dispatch all manner of credit ice breakers. Yet the credit ice still thickens," Barclays said in a note to clients.

ICELAND FIGHTS AGAINST MELTDOWN

The yen surged 1.7 percent to 103.22 per dollar while the euro hit a 13-month low of $1.3542 . The dollar .DXY rose 0.3 percent against a basket of major currencies.

Turmoil escalated in Iceland, where the crown currency fell 10 percent on the day to hit a record low of 180 to the euro , according to the Reuters dealing system.

The government is scrambling to avert a financial meltdown after authorities also failed to agree any specific measures over the weekend.

The interbank cost of borrowing dollars for three months was indicated as high as 5.47 percent on Reuters system . This compares with market expectations that the Federal Reserve will have cut interest rates to 1.50 percent by January, half a percentage point below the current rate.

The December Bund future FGBLc1 rose 127 ticks, drawing in funds seeking safer assets. Gold , seen as a safer asset, rose to $842.80 an ounce.

Emerging sovereign debt spreads 11EMJ widened 11 basis points while emerging market stocks .MSCIEF lost 6.3 percent. In Russia, the main exchange indexes lost 14-15 percent .IRTS .

U.S. light crude CLc1 fell 4.2 percent to $89.84 a barrel as concerns grew but the slowing economy would choke off energy demand.