World stocks slipped from the previous day's 11-month high on Thursday after oil prices fell and caution grew ahead of the Group of 20 summit meeting, prompting investors to cut back on risky assets.
U.S. stocks fell on Wednesday as investors grew worried that the Federal Reserve may be closer to pulling back on extraordinarily loose monetary policy.
However, the Fed promised on Wednesday to hold interest rates very low for a long time after leaving them close to zero percent as expected, which supported government bonds across the board in Europe.
The timing for exit strategy — or plans to unwind emergency economic support — is a key issue for investors as the two-day G20 summit in Pittsburgh starts on Thursday. G20 leaders are seeking ways to nurture the recovery from the recession and build safeguards against future catastrophes.
Crude oil prices fell below $69 a barrel, adding to a nearly four percent drop on Wednesday, after data showing an unexpectedly high build up in U.S. oil and products stockpiles raised concerns oil prices may have risen too fast.
Thursday's decline in world stocks follows a near 27 percent rise since January in the benchmark MSCI world equity index, recouping more than half of last year's losses.
"It's a dose of reality. Although there is cash out there, investors are saying no thank you, we have gone high enough and want to take money out of the market," said Justin Urquhart Stewart, director at Seven Investment Management. The MSCI world index fell 0.3 percent while the FTSEurofirst 300 index fell more than 1 percent.
Emerging stocks fell 0.9 percent.
STERLING HIT
Sterling fell broadly after Bank of England governor Mervyn King said the weaker pound is helping a necessary rebalancing of the UK economy towards exports.
The UK currency fell as low as 90.89 pence per euro, its weakest since April, and was down 0.6 percent to $1.6238.
In the bond markets, the euro zone's benchmark September bund future rose 47 ticks.
The dollar rose a quarter percent against a basket of major currencies.
"Given the lengthy period of time it will likely take the economy and financial markets to fully recover, we do not foresee the Fed raising rates before the first quarter of 2011," Banc of America Securities-Merrill Lynch said in a note to clients.
