MSCI world equity index down 0.2 percent at 224.77…  China cuts rates but gloomy Japan, euro zone data weighs… Dollar weakens; bonds rise

Global shares weakened on Monday and the dollar fell broadly, weighed by signs of a deepening recession in Japan and the euro zone and concerns about the banking sector around the world.

China’s interest rate cut — the fifth move since September — failed to boost stocks as data showed the deepest plunge on record in euro zone industrial new orders and a record annual fall in Japanese exports in November. Ireland’s weekend announcement that it would take stakes in its three main banks for 5.5 billion euros further underlined the global scope of the worst financial crisis in 80 years.

“One thing you can say for sure is that there has been no Christmas rally,” said Philip Isherwood, strategist at Dresdner Kleinwort.

“The macro outlook is savage. And we want earnings season out of the way. We know it’s going to be bad.”

The MSCI world equity index fell 0.15 percent.

The index rallied last week, rising 20 percent since November 21, when it hit the 5-1/2 year low. It is still on track for its first monthly gain in December after six successive months of losses.

“People can’t see where the turnaround is going to come from — the one piece of good news is that most of the bad news has been discounted,” said Justin Urquhart Stewart, investment director at Seven Investment Management.

The FTSEurofirst 300 index of leading European shares fell 1.4 percent, led by falls in banks such as BNP Paribas . Emerging stocks fell 1.6 percent.

U.S. stock futures were pointing to a slightly firmer open on Wall Street.

EURO AND EASING

The euro rose 0.4 percent to $1.4123. It was up over 1 percent against the dollar at one point as investors grew worried about the economic impact of the U.S. car industry’s expected restructuring. The U.S. government moved on Friday to throw its automakers a $17.4 billion lifeline.

The euro’s trade-weighted exchange rate is up more than 7 percent this month.

“Europe will ultimately need some effective easing one way or another. And the tightening we have seen ultimately is likely to add to the downward pressure on European growth and inflation, and the upward pressure on European bonds,” Goldman Sachs said in a note to clients.

Against a basket of major currencies, the greenback ticked lower, on track for its biggest monthly loss since 1985.

Oil prices rose 0.5 percent to $42.59 a barrel after OPEC producers promised to keep to the cartel’s agreement to cut back production.

The March bund futures were up 42 ticks.

Natsuko Waki, Reuters 12/22/08