World shares head for worst month ever

The Bank of Japan joined a global easing cycle by trimming interest rates by 20 basis points to 0.3 percent, but disappointed many who had expected a bigger quarter point cut.

The move followed the Federal Reserve's decision to cut interest rates to 1 percent -- its lowest level since June 2004 -- to stave off a prolonged recession. China, Hong Kong and Taiwan also lowered the cost of borrowing this week, with the euro zone, Australia and Britain seen following suit next week.

However, investors feared a round of rate cuts was not enough to stem the flow of worsening corporate earnings and bolster consumer consumption in major economies which might be already in recession.

In response, oil and commodities fell sharply.

"Volatility is the watchword today," said Adam Cole, global head of currency strategy at RBS Capital Markets. "The usual risk aversion plays will also come into play given losses in Asian shares." MSCI world equity index (.MIWD00000PUS) fell 0.9 percent. The index has fallen 21 percent this month, on track for its worst monthly performance in the index's 20-year history.

Asian stocks (.MIAPJ0000PUS) ticked down on the day and European stocks (.FTEU3) were down 0.7 percent. Both indexes also headed for their worst month ever.

U.S. crude oil fell 3 percent to $63.96 a barrel, falling all the way from its record high around $147 set only in July. Gold fell to $724.10 an ounce.

Emerging stocks (.MSCIEF) rose 0.4 percent. The December bund futures fell 30 ticks.

Yen, Dollar Surge

The yen surged 1.7 percent to 96.98 per dollar even as the BOJ cut interest rates.

Risk-averse investors were chasing the low-yielding Japanese currency across the board, sending the yen up nearly four percent to 122.69 per euro.

The dollar (.DXY) rose 1.3 percent against a basket of major currencies.

"The gradual shift in market attention from credit issues to real economic concerns suggests that market stability and releveraging will be some months away," Calyon said in a note to clients.

"The economic news is set to worsen, implying only a very gradual easing in risk aversion in the months ahead and potentially negative feedback to credit markets. Against this background the dollar is set to remain firm."