Stocks shaken down on recession fear

By Veronica Brown

LONDON (Reuters) - Risk aversion wrestled stock markets down on Wednesday, snuffing out a two-day rally as investors returned to last week's rattled state even after government bank bailouts took the edge off money market stress.

The yen and gold prices rose, while government bonds also climbed in a fresh bid to unload risk on the reality of recession despite trillions of dollars pledged to recapitalise banks and stem the worst financial crisis since the 1930s.

The FTSEurofirst 300 index .FTEU3 of top leading shares fell 2.6 percent, while Germany's DAX .GDAXI and the FTSE .FTSE both shed more than 2 percent.

MSCI's main world stock index .MIWD00000PUS was down more than 1 percent, as the two-day rebound from a five-year low fizzled.

"After the colossal gains achieved at the start of this week, it would seem that the hangover has kicked in and investors have sobered to the reality that recession is here," said Andrew Turnbull, senior sales manager at ODL Securities.

The recessionary fear was also reflected in MSCI's measure of Asian stock markets excluding Japan .MIAPJ0000PUS, which slid 3.3 percent. Japan's Nikkei .N225, however, rose 1.1 percent after spending most of the session in negative territory.

U.S. stock futures pointed to a weaker Wall Street open, but pared losses after JP Morgan reported Q3 net income equating to $0.11 per share and reported net markdowns of $3.6 billion (2 billion pounds).

REAL ECONOMY BITES