* MSCI world equity index down 0.65 pct at 338.18

* Merrill writedowns, weak economic data add to gloom

* Oil rises on supply concerns, dollar under pressure

By Natsuko Waki

LONDON, July 29 (Reuters) - World stocks hit a two-week low on Tuesday after Merrill Lynch MER.N said it would take a $5.7 billion writedown to offload toxic debt, upsetting investors already nervous about the health of the financial sector.

Oil rose for a second day in a row from last week's seven-week trough as tensions in Iran and Nigeria stirred supply concerns, while the dollar steadied off the previous day's one-month high against the yen.

Data from key industrialised economies added to the gloom, as French consumer confidence tumbled to a record low while Japan's jobless rate rose to a near two-year high in an economy that probably contracted in the second quarter. The announcement by Merrill, the third largest U.S. bank, came after U.S. regulators closed two regional banks on Friday, marking the sixth and seventh bank failures this year as the sector wrestles with the deepest housing slump since the Great Depression.

That series of events, combined with mixed quarterly results, raised concerns that the fallout from the credit crisis has much further to run.

"The news from Merrill brings more uncertainty to the market," said Rik Zwaneveld, trader at AFS Brokers in Paris.