Stocks and dollar fall on fresh financial concerns

By Natsuko Waki

LONDON (Reuters) - World stocks and the dollar fell on Thursday after concerns grew about the fate of U.S. mortgage firms and the health of the broader financial sector, while a weak dollar helped oil and commodities extend rebound.

On Wednesday, investors dumped Fannie Mae (FNM.N) and Freddie Mac (FRE.N) on fears of an imminent government bailout, knocking the shares to their lowest in nearly 20 years.

Reports on major banks kept alive general financial sector concerns. Wall Street Journal said the Federal Reserve called Credit Suisse (CSGN.VX) last month to see if it had pulled a credit line from Lehman Brothers LEH.N, while the Financial Times reported both Chinese and Korean investors walked away from a possible deal to buy Lehman shares.

Oil prices rose above $116 a barrel, renewing inflation concerns.

"Inflation fears are back, on top of worries surrounding the fate of Freddie Mac and Fannie Mae, fears of additional writedowns, etc. etc. People are getting nervous again," said Rik Zwaneveld, trader at AFS Brokers, in Amsterdam.

The FTSEurofirst 300 index .FTEU3 fell 1.2 percent while the MSCI main world equity index .MIWD00000PUS lost 0.3 percent.

Asian shares outside Japan .MIAPJ0000PUS fell 1.6 percent.

Financial sector concerns are also intensifying in Australia, where investment firm Babcock & Brown (BNB.AX) replaced its chief executive and chairman but failed to ally concerns about the future, sending its shares to a record low.