Credit fear stalks shares as oil reignites dollar

By Veronica Brown

LONDON (Reuters) - European stocks slid in tandem with their Asian counterparts on Tuesday, haunted by renewed concern surrounding the top U.S. mortgage finance companies, while falling oil helped send the dollar to fresh peaks.

Europe's shares were rattled, falling 1.6 percent in early trade, after Asian stocks hit a 2-year low overnight as an end to the worst U.S. housing crisis since the Great Depression looked as far away as ever.

Demand worries sparked by a weak global economic outlook took oil below $112 a barrel, but reignited the dollar's rally to its highest this year against a basket of major currencies as investors to bulked up their holdings.

Jitters over U.S. financial sector stability bubbled to the surface again after an article in Barron's said a government bailout could wipe out existing holders of Fannie Mae and Freddie Mac common stock with other asset holders also suffering losses.

"Overall the environment for equity markets remains very difficult as it has now become clearer that we are witnessing a more severe economic slowdown," said Tammo Greetfeld, a strategist for UniCredit in Munich.

By 9:24 a.m., the FTSEurofirst 300 Index had fallen 1.7 percent to 1169.13 points. Japan's Nikkei share average tumbled 2.3 percent to a one-month low, while the MSCI pan-Asia equities index fell 1.7 percent to its lowest since July 2006, down 22 percent this year.

The drop in oil prices was felt far and wide, with other commodities including gold and copper relinquishing tentative rallies in the previous session.

Recent slides in commodity prices have now left the Reuters-Jefferies CRB Index down 18.6 percent from levels seen in early July.