Auto woes weigh on global stocks

World stocks and oil fell on Wednesday while government bonds and the yen gained as U.S. automakers begged for a bailout from Washington, adding to evidence that the credit crisis is crippling the real economy.

U.S. auto executives warned Congress on Tuesday that their industry was teetering on the brink of disaster as they pleaded for a $25 billion aid package.

The bailout proposal for General Motors, Ford Motor and Chrysler LLC failed to gain traction in the Senate amid doubts over whether the government should be spending yet more taxpayer money on corporate rescues.

"There's a lot of worry about the possible bailout of the Big Three carmakers in the U.S., since it doesn't seem to be coming together well at all, and this is keeping investors from buying," said Katsuhiko Kodama, senior strategist at Toyo Securities in Tokyo.

"Failure to pull this together would set U.S. stocks falling, have a knock-on impact on other carmakers, and worsen employment, so the impact would be quite severe." The MSCI world equity index fell 0.6 percent while the FTSEurofirst 300 index of leading European shares dropped 1.2 percent. Emerging stocks lost 0.9 percent.

U.S. crude oil fell 1 percent to $53.74 a barrel, hitting its lowest in almost two years and falling more than $90 from its July record peak.

The yield on two-year U.S. Treasuries fell to a five-year low of 1.122 percent as investors sought safer government bonds. December bund futures rose 55 ticks to hit their highest level since March 2006 while Japanese government bonds also rose.

"Deleveraging is alive and well, leading to a come back in the risk-aversion bid, as investors sell out of riskier positions," Societe Generale said in a note to clients.

"Just about any news is an excuse to sell risk, as longer term dangers edge ever closer."

The yen rose to 96.66 per dollar as investors chased the low-yielding currency. The dollar was steady against a basket of major currencies.