World shares at six-month low as growth worries mount

LONDON (Reuters) - Shares across the world fell sharply on Friday, pushing a global index to a six-month low, as investors worried about the prospect of a widespread economic slowdown while U.S. monetary stimulus nears its end.

Assets which depend on economic growth, such as shares and oil, have been hit by a raft of weak indicators from Europe at a time when other big economies, including China, Japan and Brazil face their own hardships.

Meanwhile, the U.S. Federal Reserve is set to wind down later this month the asset purchase programme which has boosted markets over the past two years. Many observers doubt the recent stimulus measures unveiled by the European Central Bank will make up for it.

Brent crude futures tumbled to their lowest since 2010 while gold, seen as a safe asset at times of uncertainty, was headed for its best week in nearly four months.

"There has been a barrage of negative thoughts on growth and growth assets," Stewart Richardson, a partner of macro hedge fund, RMG Wealth Management, said.

"I believe we're entering a bear market. We've been trying to be short equities and we've been focusing our shorts in Europe and small caps," he said, referring to bets that shares in those markets will keep falling.

The MSCI All-Country World index (MIWD00000PUS) fell 0.6 percent to its lowest level since April 18 at 404.50 points, taking its loss since the start of the week to 1.6 percent.

The index, which is eyeing its third consecutive weekly fall, has retreated by nearly 7 percent since testing an all-time high last month.

A string of dismal data from Germany and other large euro zone economies in recent weeks has fed anxieties about a possible recession in the region while the jury is still out on the European Central Bank's proposed policy response.

The ECB's covered bond buying programme, a key part of the bank's latest package, has yet to kick in and some investors remain doubtful it will be sufficient to shore up growth and inflation in the currency bloc while the Fed reins in its own stimulus.

Adding to jitters about monetary policy expectations, St. Louis Federal Reserve Bank President James Bullard said he was concerned by a disconnect between the market's view of the Fed's rate-increase path and the central bank's own view.

Financial markets have constantly expected much slower tightening by the Fed than U.S. central bank policymakers' own projections.

The concerns on global growth hit oil prices hard. European benchmark Brent crude oil fell 1.1 percent at $89.08, having hit its lowest level since December 2010 at $88.11.

Gold, steady at $1,223.20, retained gains from a four-day rally and was headed for its best week in nearly four months.

Wall Street stocks had slumped 2 percent on Thursday, with the S&P 500 index (SPX) hitting a two-month closing low. The CBOE volatility index (VIX), a measure of investor anxiety, rose to highs not seen since early February.

© Reuters. People pass electronic information boards at the London Stock Exchange in the City of London

"If U.S. stocks jumped back today, then the market could go back to the same habit of assuming everything will be alright. But if they fall big for two days in a row, markets will be clearly entering a whole new phase," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.

(Additional reporting by Lisa Twaronite and Hideyuki Sano in Tokyo)