* Hang Seng index drifts lower, down 2.5 percent

  * Shanghai Comp flat, gives up gains as official PMI disappoints

  * Property developers biggest underperformers in HK (Updates to close)

  By Vikram Subhedar

  HONG KONG, Nov 1 (Reuters) - Hong Kong shares fell on Tuesday after a surprise drop in Chinese manufacturing and renewed worries over a euro zone debt deal did little to slow profit-booking after last month's rally, particularly in the property sector.

  Turnover was light as investors remained cautious ahead of market-moving events this week that include U.S. payrolls data, a Group of 20 summit and key central bank meetings in the West.

  The Hang Seng index fell 2.5 percent drifting lower through the day in line with other Asian markets. The China Enterprises index , one of Asia's top performing benchmarks last month, dropped 3.1 percent.

  On the mainland, the Shanghai Composite ended the day slightly higher, up 0.1 percent, supported by retail investors buying into the insurance sector on hopes of better investment income as the domestic stock market recovers.

  China's official purchasing managers' index (PMI) for October came in weaker than expected, recording its lowest reading since February 2009 as weaker Western economies took a toll on factories.

  While lower input prices at China's factories also suggested that inflationary pressures in the manufacturing sector were easing, market players said it was still early to call for China to loosen its policy stance.

  " Some had thought that China easing, when it comes, would benefit the property sector," said a Hong Kong-based trader at an American brokerage.

  " Having spent the last couple of years tightening the property sector it does not want to see that hard work ruined," said the trader, adding that any easing will be focused on small- and medium-sized enterprises.

  Developers remained under pressure in Hong Kong with the sector index ending down 4 percent, the weakest of all the sub-indexes.

  Bellwether Cheung Kong Holdings fell 4.7 percent while China Overseas Land , one of last month's best performing stocks, shed 6.7 percent.

  China Overseas rose nearly 30 percent last month.

  While China's moves to clamp down on its red-hot property sector has led to lower transaction levels and loans to developers have come off sharply, authorities have reiterated that they intend to keep a tight leash on the sector.

  Analysts at Credit Suisse maintain their " underweight" stance on Chinese property stocks and say the recent rally is not sustainable.

  " 29 October's State Council meeting re-emphasised tightening on property, and urged local governments to strictly implement tightening measures," said Credit Suisse in a note.

  Longfor Properties , which found itself the target of furious protests by existing homeowners over price cuts in Shanghai earlier this month, fell 5.2 percent while Evergrande slumped 5.8 percent. (Editing by Ramya Venugopal)

(Updates prices, adds quote)

  By Jeremy Gaunt, European Investment Correspondent

  LONDON, Nov 1 (Reuters) - Greece's shock decision to hold a referendum on its euro zone bail-out package sent investors scurrying for safer investments on Tuesday, hammering stocks and punishing the euro.

  It scotched any immediate expectations for an end-of-year stock rally. Wall Street looks set to open sharply lower.

  An unexpected fall in PMI data for China's manufacturers also hurt investor risk-taking sentiment as did Monday's failure of U.S. trading firm MF Global Holdings Ltd due to euro zone debt exposure.

  European stocks were down 3 percent and MSCI's all-country world stock index shed nearly 2 percent.

  Greek Prime Minister George Papandreou's announcement on Monday that he will put Greece's bail-out to a referendum immediately cast doubt on the euro zone's plan to hand Athens 130 billion euros and arrange a 50-percent write-down on its huge debt.

  It raised the possibility of a disorderly default on its debt if Greeks vote against the plan.

  But more broadly it also threw into chaos the euro zone's wider attempts to stop the debt crisis spreading to more significant economies such as Italy.

  Attempts to get countries such as China and Brazil to fund an enhanced euro zone rescue fund, for example, will have hit a major barrier, given that it is not clear that the euro zone's grand compromise agreed last week will stand.

  " The referendum is a bad idea with a bad timing. The post-summit rally is over," said Lionel Jardin, head of institutional sales at Assya Capital in Paris.

  The referendum -- details of which have not been accounced -- is not expected until the beginning of next year, which means uncertainty is likely to continue throughout November and December.

  The FTSEurofirst 300 index of top European shares was down 3.2 percent after tumbling 2.2 percent in the previous session.

  Euro zone banks were hammered, with Societe Generale down nearly 14 percent and Credit Agricole down 1O.5 percent.

  Earlier, Japan's Nikkei closed down 1.7 percent.

 

  EURO KNOCKED

  On foreign exchange markets, the euro fell more than one percent versus the dollar and yen as investors cut exposure to the common currency, fearing a disorderly default.

  " The Greek referendum is a real curve ball, nobody saw it coming and it injects a lot of uncertainty," said Steven Saywell, head of FX strategy at BNP Paribas.

  Some analysts, meanwhile, said investors would be wary of buying the dollar too aggressively given a two-day Federal Reserve meeting that concludes on Wednesday and key U.S. jobs data due on Friday. Any hints that the Fed is considering further monetary easing, or signs the economy is flagging, could drive the greenback lower.

  Worries about the impact of the Greek decision on other euro zone countries sent the difference between yields on Italian and Belgian 10-year bonds and those of benchmark German counterparts to lifetime highs. (Additional reporting by Blaise Robinson and Nia Williams editing by Stephen Nisbet)

* Greek referendum throws debt bailout plans into turmoil

  * Chinese manufacturing slowest since early 2009 - PMI

  * MF Global collapse deepens concerns over global economy

  * U.S. dollar jumps, euro down more than 1 percent

  * Coming Up: U.S. ISM manufacturing data at 1400 GMT (Updates detail, comment)

  By Christopher Johnson

  LONDON, Nov 1 (Reuters) - Oil prices fell more than $2 per barrel on Tuesday as worries over the euro zone debt crisis and the collapse of broker-dealer MF Global darkened the outlook for the global economy.

  The dollar rose 1.5 percent while the euro fell sharply after a shock announcement that Greece would hold a referendum on its debt bailout, throwing efforts to resolve the euro zone's debt crisis into fresh doubt.

  Investors fear the Greek move are likely to undermine Europe's efforts to stop its sovereign debt woes from spreading and could put other euro zone economies in jeopardy.

  Futures brokerage MF Global filed for bankruptcy protection on Monday following bad bets on euro zone debt, making it the biggest U.S. casualty of Europe's debt crisis and the seventh-largest U.S. bankruptcy by assets.

  Prospects for global growth were also dampened by data from China showing the country's big manufacturers ran at their slowest pace in October since 2009 as the official purchasing managers' index (PMI) fell to 50.4 in October from 51.2 in September.

  ICE Brent December crude futures < LCOc1> fell $2.07 to a low of $107.49 before recovering to trade around $107.80 by 1040 GMT. Brent posted a 6.6 percent gain in October, its biggest jump since April, and after slumping 10.5 percent in September.

  U.S. December crude futures < CLc1> fell $2.30 per barrel to a low of $90.63 before rallying a little to around $90.70 by 1040 GMT. U.S. crude surged 17.7 percent in October, the biggest percentage gain since May 2009.

  " Risk aversion is back in the markets," said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. " The euro zone debt crisis is still the prevailing topic, and the solution we thought we were celebrating last week no longer seems certain."

 

 

  SHADOW

  Oliver Jakob, managing director of energy consultancy Petromatrix in Zug, Switzerland said the surprise news of the Greek referendum and the lower Chinese PMI data had cast a shadow over all financial markets.

  Reports the collapse of MF Global may have been due to misuse of funds were also sending shivers through markets.

  The New York Times reported federal regulators had discovered hundreds of millions of dollars in customer money had gone missing from MF Global. Regulators were looking into whether the broker used some of the money to support its own trades, it reported, citing unnamed sources.

  " Speculation about funds going missing in MF Global segregated accounts will not help," Jakob said. " The mess in Greece will also not be helped by the liquidity issues resulting from the mess in MF Global," he added.

  Investors were looking ahead to this week's meeting of the U.S. Federal Reserve, which ends on Wednesday, as well as a summit of the Group of 20 nations, and U.S. payroll data on Friday as pointers for the markets.

  OPEC oil output fell in October as reduced supplies from Iraq, Nigeria, Saudi Arabia and Angola offset rising Libyan supply, according to a Reuters survey.

  The International Energy Agency does not want OPEC to cut output at its December meeting because the IEA expects demand for OPEC oil will grow by half a million barrels per day in 2012 above the group's September output.

  The IEA is also not looking to another release of emergency oil stocks as the global supply situation has changed from when inventories were released earlier this year, Richard Jones, deputy director of the agency told Reuters in an interview on Tuesday.

  Jones said oil prices above $100 per barrel were a threat to the global economy, adding current prices were already having an impact.

  U.S. commercial crude oil stocks are forecast to have risen for the second consecutive time last week as imports continued to rebound, a preliminary Reuters poll of analysts found on Monday.

  The industry group American Petroleum Institute's inventory report is due on Tuesday at 2030 GMT, with the U.S. Energy Information Administration's report following on Wednesday. (Additional reporting by Angela Bulgari and Zaida Espana in London, and Rebekah Kebede in Perth editing by James Jukwey)

  * Asian manufacturing slows on low European demand

  * US dollar jumps crude futures, copper prices slide

  * Greek referendum throws EU deal into disarray

  * Futures down: Dow 157 pts, S& P 26.6 pts Nasdaq 41.75 pts (Updates prices, adds comment, byline)

  By Rodrigo Campos

  NEW YORK, Nov 1 (Reuters) - U.S. stock index futures tumbled on Tuesday as the deal to rescue Greece and prevent a wider sovereign debt crisis faced a new hurdle and as Asian economic data reignited fears of a slowdown in global growth.

  Greek Premier George Papandreou said he will put Greece's bailout deal through a referendum, throwing the long-awaited deal into disarray and sending European stocks down 3.5 percent. The region's bank shares fell 6 percent.

  U.S. bank shares were expected to follow European lenders lower. The Financial Select Sector SPDR fell 2.3 percent in light premarket trading.

  " The market did not see this Greek referendum coming, which is potentially a killer and could knock the wheels off the bus of the whole (European rescue) plan," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

  Most Asian stock markets fell after data showed factory activity in the region's export powerhouses slowed to near three-year lows in October on lower European demand, reinforcing fears the euro zone's debt troubles were sapping global growth.

  S& P 500 futures dropped 26.6 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures lost 157 points and Nasdaq 100 futures slid 41.75 points.

  S& P 500 futures fell below their 14-day moving average for the first time since Oct. 6 early Tuesday, pointing to a possible shift in short-term momentum. Stocks closed on Monday their best month in 20 years.

  China's factory activity last month was its slowest since February 2009, the government said, an unexpected decline that reflected a drop in new export orders. The overall index dipped to 50.4 from September's 51.2, edging closer to the 50 line that separates growth from contraction.

  In a move that could further weigh on commodity prices and risky assets, Japan vowed to step into foreign exchange markets again to curb excessive speculation. The government reportedly sold a record 7.7 trillion yen ($98.7 billion) Monday to curb the yen's strength, which is hurting its export-based economy.

  The U.S. dollar index rose 1.5 percent. U.S. oil futures dropped 2.7 percent and copper prices fell 3.8 percent.

  In the United States, the ISM Manufacturing Index is expected to edge up to 52.0 in October from 51.6, based on a Reuters poll. The data is due at 10 a.m. EDT (1400 GMT).

  The Federal Open Market Committee kicks off its two-day policy-setting meeting later Tuesday. The FOMC is likely to take a break from policy changes after two consecutive easing actions.

  Pfizer Inc, the world's biggest drugmaker, reported better-than-expected quarterly results early Tuesday, and its shares rose 1.3 percent to $19.50.

(Adds detail, comment, updates prices)

  * US grains, soybeans hit by dollar spike against yen

  * Economic events to be key focus

  * USDA weekly crop report coming out on Monday

  By Ivana Sekularac and Bruce Hextall

  AMSTERDAM/SYDNEY, Oct 31 (Reuters) - U.S. corn and soybean futures fell on Monday as the dollar spiked higher against the yen ahead of a flurry of economic events this week that could determine risk appetite.

  The dollar surged on Monday to a three-month high against the yen due to yen-selling intervention by Japanese authorities, traders said.

  U.S. Federal Reserve policymakers are due to hold a two-day meeting starting on Tuesday as the market looks for further initiatives to boost the moribund U.S. economy. October U.S. employment data due on Friday will also help shape views of the economy. The G20 is also scheduled to meet this week.

  Investors in grain markets will also remain on watch for signs that last week's 11th-hour deal to support euro zone sovereign debt will move forward -- a signal that could spur them to take on more risk.

  " By and large we're priced fairly as far as fundamentals are concerned," said Brett Cooper, a senior markets manager at INTL FCStone Australasia.

  " The big moves have generally been macro-driven, and I don't think that will that change, unless there's something that changes the fundamental view," he said.

 

  LACK OF DEMAND

  A lack of demand has kept a lid on U.S. grains prices, even with a rebound in October after they dropped in September.

  Weak export demand for U.S. corn and wheat reflects increased competition from Black Sea suppliers, which have returned to the market after a severe drought last year curtailed their exports.

  The U.S. Department of Agriculture (USDA) will release its weekly crop report on Monday, which could show some improvement in the winter wheat crop following rain and snow last week, but the crops in the southern plains are likely to be struggling due to prolonged dry weather, which is set to return this week.

  On Monday, corn for December delivery < Cc1> fell 0.99 percent to $6.48-3/4 per bushel by 1207 GMT, which compared with a monthly high of $6.65-1/2 on Oct. 21. The contract notched its fourth straight week of gains on Friday.

  Wheat for December delivery dropped 0.89 percent to $6.38-3/4 per bushel in light trade on expectations of weak U.S. exports.

  The actively traded January soybean contract < Sc2> was down 0.82 percent at $12.15-1/2 a bushel.

  In Europe, benchmark January milling wheat on the Paris-based futures market was quoted at 183.25 euros ($259.77) a tonnes from 183.25 euros a tonne on Friday

  " The unfavourable price trend is likely to result in a smaller acreage for wheat in the US in favour of corn, which should lend support to wheat at its current price level," Germany's Commerzbank wrote in its daily report on Monday.

  Egypt bought 120,000 tonnes of Ukrainian wheat over the weekend at $248-$249 per tonne (fob), the lower end of price ranges. Ukraine's farm ministry also raised its forecast for the 2011 harvest to a record 54 million tonnes from 53 million and exports to 11 million tonnes. .

  China has bought around 500,000 tonnes of new-crop Australian Standard White wheat in the last couple of weeks with more sales likely, according to traders.

  " The grain markets are moving in lock step with changes in the macro environment,' said Christopher Gadd of Macquarie Securities.

  " There has been relatively little news about the fundamentals recently." * Prices as of 1210 GMT

* India cuts exports due to export taxes and low spot price

  * Big three iron ore miners still produce at full steam

  * Shorter-term pricing will boost freight derivatives

  By Silvia Antonioli and Jonathan Saul

  LONDON, Oct 31 (Reuters) - Weaker international iron ore prices are driving high-cost Chinese domestic suppliers to cut output, which will push the top consumer and steelmaker to rely more on seaborne imports in the coming weeks, supporting the dry freight market.

  International iron ore prices have dropped more than 30 percent since September, including a record 18 percent plunge last week, as lower steel prices have forced Chinese steelmakers to cut production. < .IO62-CNI=SI>

  The steelmakers' inventories are running low, however, and they will need to restock in the coming weeks. Analysts expect them to turn to cheaper international ore rather than costlier, lower-quality domestic output.

  This is expected to provide support to larger capesize vessels, which are used to transport ore from major players in Brazil and Australia, and may also help drive up the usage of freight derivatives.

  " Logically, Chinese steel mills may buy more seaborne iron ore due to the recent drop in price," said Denny Sabah, a metals analyst at London-based trading house Ronly.

  " A Chinese iron ore mine with, for example, a $140 per tonne cost of production will now be struggling to shift material."

  International iron ore prices were at about $117 per tonne cost-and-freight China on Friday, already well below much of its domestic supply cost.

  " Chinese domestic supply is very flexible," said Macquarie iron ore and steel analyst Colin Hamilton. " Much of this supply is in the process of being cut."

  Some Chinese producers have costs as high as $150-160 per tonne, and costs for a quarter of all Chinese supply are above $135 per tonne, according to data from Macquarie.

  " Longer-term, three months plus, if we have a lower price environment for iron ore, that may lead to more import substitution in China as we saw a couple of years ago," said Derek Langston, a senior director at SSY Consultancy and Research.

  Shifts in the trade of iron ore are crucial to the capesize shipping market, which has been struggling with a glut of vessels. Iron ore volumes account for the biggest share of that market at around 31 percent of capesize shipments, followed by coal at around 29 percent.

 

 

  THE BIG THREE

  " The combination of domestic ore displacement, Indian export bans and increased supply should be supportive of the capesize segment," said Nigel Prentis, head of research, consulting and advisory with HSBC Shipping Services Ltd.

  Indian iron ore suppliers have slashed exports, meanwhile, because they are subject to an export tax that adds to their costs, making then unable to compete with world's three biggest iron ore miners -- BHP Billiton , Rio Tinto and Vale .

  As for these big miners, the current low iron prices are still way above their production costs, and they have said they will continue to produce iron ore at full steam and stick to their expansion plans.

  " The big miners have continued to offer large volumes of material each day, which has caused prices to plummet, while Indian miners in comparison have not lowered their prices anywhere close to current levels and are shipping very little cargo," said Roddy Mann, senior iron ore trader at London-based Metalloyd.

  This means more iron ore will be shipped from longer-haul destinations such as Brazil and Australia, bolstering demand for capesizes, which typically haul 150,000 tonne cargoes.

  " We would need to see China prices fall below $60 per tonne before the three key Brazilian and Australian miners, Vale, BHPB and Rio Tinto, became uneconomic suppliers," a bulk commodities analyst said.

  Before iron ore prices plummeted, the capesize market benefited from strong Chinese demand, which has since dried up. But now prices have fallen, another boost to capesize earnings is now likely to come from its step-up in imports.

  Miners also say the iron ore price dip, which gives the upper hand to buyers, will also fuel a move to shorter supply contracts away from the current quarterly system.

  Analysts said a switch to monthly or spot iron ore contract prices would increase freight volatility, which is likely to boost the use of the freight derivatives or FFA market for hedging purposes.

  In the week ended Oct. 21, 2011 capesize FFA volumes, excluding options, reached 424,686 lots, up 7 percent from the same period last year, data from clearing houses showed.

  " As people get more used to volatility, FFAs and options will be more attractive for companies to use," said Peter Norfolk, research director at freight broker FIS. (editing by Jane Baird)

* Governments struggle to secure supplies with oil over $100/bbl

  * Brent over $100 would hurt the global economy -Tanaka

  * High prices will lead to more investment, boost output -Hamli (Adds Shell and Petrobras CEOs comments)

  By Florence Tan and Francis Kan

  SINGAPORE, Oct 31 (Reuters) - Governments in emerging Asian economies will struggle to secure their rising energy needs as rapidly swelling demand in leading consumers China and India outpaces growth in supplies, which is likely to keep oil prices over $100 a barrel.

  High fuel costs for importers are threatening their economies as they grapple with rising subsidy bills and inflation.

  The fuel burden, with oil imports costing around 5 percent of gross domestic product, is weighing on economic growth, said Richard Jones, deputy executive director of the International Energy Agency.

  " It's particularly sensitive in emerging markets, India is a country that has got a particularly high oil burden, they import a lot," Jones said.

 

 

  The rise in prices has been partly blamed on the growing energy appetite of Asian nations. China, the world's second-biggest economy, has driven oil demand growth for a good part of the past decade. India is also competing to secure scarce energy resources for its billion-plus people.

  The global economy needs to see lower prices, Nobuo Tanaka, former head of the International Energy Agency, said.

  " If $100 oil continues, it will be as bad as 2008," Tanaka told the Singapore International Energy Week (SIEW) conference.

  Brent prices < LCOc1> have averaged over $111 a barrel so far this year, sharply up from an average of around $80 in 2010. The front-month contract hit a high of $147.50 in July 2008, just ahead of the global financial crisis of that year.

  Brent at over $100 would cut global oil demand by around 1 million barrels per day (bpd) from what fuel consumption would be at a price of $70 to $80 per barrel, Tanaka said. That would slice more than 1 percent from total world fuel consumption.

  Brent will average $106.80 per barrel next year and $108.60 in 2013, a recent Reuters poll of 35 analysts showed, as demand for fuel from China and other emerging economies keeps the global oil market tight.

  The burden of high energy costs on growth contributed to the sharp slowdown in the global economy in the wake of the 2008 financial crisis. High prices led to such a sharp slowdown in fuel demand that oil producer group OPEC was forced to make record output cuts.

  The oil minister for the United Arab Emirates did say producers can tolerate a further fall in oil prices to $80-$100 a barrel, the first indication of a preferred price range from a Gulf Arab producer since OPEC talks collapsed in June.

  High oil prices would help guarantee future supplies, UAE oil minister Mohammed bin Dhaen al-Hamli said, by encouraging more investment in crude production capacity, which would mean less volatile prices.

  " We need a reasonable price to continue building capacity," Hamli told the conference.

  " The higher the capacity, the less fluctuation in prices."

  The UAE, one of three Gulf OPEC producers with spare capacity, is pumping at 2.5 million barrels per day (bpd) from capacity of 2.7 million bpd, Hamli said, having upped output to help meet a supply shortfall from Libya.

  The Arab Spring and the disruption to Libya's oil output have added to the difficulty policy makers face as they search for secure oil supplies.

  " The recent spate of unrest in the Middle East and North Africa has generated doubt over the reliability of energy supplies from the region," said S Iswaran, minister in the Singapore Prime Minister's office.

  " These events have caused increased volatility in energy markets and prices, heightening the policy challenge of governments to secure reliable and affordable energy supplies to sustain growth."

  Oil prices are not expected to decline in the longer term, the CEOs of two major oil companies said at the conference.

  " Oil prices will not come down for quite a long time," said Shell CEO Peter Voser, while Petrobras Chief Executive Jose Gabrielli said he didn't see a reason for a price decline in the next 5 to 10 years. (Additional reporting by Simon Webb, Jessica Jaganathan, Luke Pachymuthu, Randy Fabi Writing by Manash Goswami Editing by Michael Urquhart and Clarence Fernandez)

* FTSEurofirst 300 down 1.3 pct volatility up 8 pct

  * Still on course to snap 5-mth losing streak

  * Euro zone banks retrace more of last week's hefty gains

  By Simon Jessop

  LONDON, Oct 31 (Reuters) - Banks led European shares lower on Monday, giving up some of last week's hefty gains as demand for detail on the recent euro zone debt deal teed up a weak end to a bumper month, with the broader market on course to snap a five-month losing streak.

  French banks were among the top fallers, with Credit Agricole down 6.3 percent after gaining nearly 30 percent last week, and both Societe Generale and BNP Paribas more than 6 percent lower.

  The sector weakness left the French blue-chip CAC-40 lagging regional peers around midday, down 1.9 percent, while the STOXX Europe 600 Euro Zone Banks index fell 4.3 percent.

  Technical factors contributed to the slide -- with both the CAC-40 and STOXX Europe 600 Banks index showing overbought Relative Strength Indexes after last week's rally -- while rising peripheral euro zone debt yields also weighed.

  Debt deal questions remain, particularly in how it will be funded, and Keith Wade, strategist at Schroders, said he was not convinced investors would buy into an insurance-type scheme to leverage the region's bailout fund, the EFSF.

  " Given the way we've had voluntary defaults and not triggering CDS, and effectively now the euro zone is going to be writing a CDS ... given their record, people will think that's not worth the paper it is printed on."

  In spite of Monday's fall, however, Wade said there was scope for good news to come through from a meeting of the Group of 20 leaders later this week, with many hoping cash-rich nations like China will use large foreign exchange reserves to help bolster the key European end-user market.

  " In terms of extra support for the EFSF, with China likely to hint that they'll make some support, and possibly even greater IMF participation. There could still be a reasonable flow of good news to support equity markets, which you must remember came from very depressed levels."

  Comments from potential investors like China and Japan have been cautious ahead of the meet, however.

  At 1145 GMT, the FTSEurofirst 300 index of leading European shares was down 1.3 percent at 1,005.12 points, although its month-to-date gain of 8.9 percent is likely to last into the close for a first monthly gain since April.

  The Euro STOXX Volatility index , which tends to move inversely to cash equities, rose 8 percent.

 

  ITALY IN FOCUS

  " Looking ahead, the real test for the euro area lies with the ability of individual member states to deliver on fiscal austerity and structural reform. Italy is centre stage in this context," Societe Generale economists said in a note.

  Those concerns were highlighted last Friday when Italian 10-year debt yields hit a euro-era high, only to extend further on Monday, contributing to a further slide in Italian stocks , down 2.5 percent.

  Against that backdrop, Cross Asset strategists at Societe Generale advised clients to go long Spain and short Italy, to play the differing political outlooks in both countries.

  The broker said Spain's Popular Party is likely to win elections on Nov. 20, which would be welcomed by markets, although they have yet to be convinced Italy will carry out the necessary economic reforms to help stem contagion fears.

  Economic data out Monday gave further evidence of the need for a solid response to the crisis, with October euro zone inflation still high, unemployment rising and regional growth set to slow sharply.

 

  JAPAN MOVE HITS MINERS

  Mining stocks also contributed heavily to the market weakness after fresh Japanese currency intervention pushed the dollar higher, making metals more expensive for many buyers and weighing on demand.

  As a result, the STOXX Europe 600 Basic Resources index was down 3.2 percent by 1149 GMT, with base metals miner Vedanta Resources among the top fallers, down 6.3 percent.

  Earnings news proved consistent in its inconsistency, backing up Thomson Reuters StarMine data that showed a more or less even split between beats/meets and losses so far in the quarterly reporting season.

  Among the big losers on Monday was Denmark-listed Vestas Wind Systems , which slid 22 percent in volume nearly three times its 90-day daily average after it posted a profit warning on Sunday.

  UK bank Barclays, down 1.1 percent, was a sector outperformer, however, after posting a rise in quarterly profit thanks to its retail banking and credit card arms and in spite of a weak investment banking environment. (Additional reporting by Dominic Lau Editing by Jon Loades-Carter)

(Corrects quote in 6th paragraph to refer to long yen/short dollar positions)

  * MSCI equity index falls 1.2 pct as strong dollar hurts commodities

  * U.S. equities seen opening lower following four weeks of gains

  * Dollar rises over 4 pct vs yen after Japanese intervention

  * Traders say more intervention likely needed for impact to last

  * U.S. crude futures shed 0.8 pct Spot gold falls over 1 pct

  By Emelia Sithole-Matarise

  LONDON, Oct 31 (Reuters) - World equities fell on Monday after commodity shares were hit by a stronger dollar which jumped in the wake of Japanese intervention to weaken the yen, while returning doubts over the EU's plan to solve the debt crisis added to the cautious tone.

  U.S. crude futures < CLc1> also fell, by 0.8 percent, as the dollar hit a three-month high, making commodities priced in the greenback more expensive for investors holding other currencies, cooling demand.

  Japan sold the yen for the second time in less than three months, saying it intervened unilaterally to counter speculative moves that were hurting the economy.

  The dollar, which had fallen to a record low of 75.31 yen earlier in Asian trade, rose more than 4 percent against to as high as 79.55 yen . It was up 2.9 percent at 77.96 yen with traders saying more intervention would likely be needed for a more durable impact.

  The dollar has come under pressure as investors cautiously returned to riskier assets such as equities after Europe's leaders laid out a basic framework to tackle the sovereign debt crisis last week.

  " The focus is to make it as painful as possible to hold long yen/short dollar positions," said Sebastien Galy, currency strategist at Societe Generale.

  " If dollar/yen continues to go aggressively lower then the Japanese authorities will feel the need to intervene again" .

  Tokyo's latest move since its record selling of 4.5 trillion yen ($59.4 billion) on Aug. 4 followed weeks of warnings by officials that intervention was possible given the yen's strength.

  Traders said the size of Monday's action could be as large or larger than previous interventions while analysts said it could be difficult for authorities to maintain the rise in dollar/yen as Japanese exporters may sell into the dollar's rally to step up their currency hedging.

 

  The euro, meanwhile, gave up most of last week's gains on the dollar's broad-based advance. It was last 1 percent down at $1.400 , retreating further from a seven-week high around $1.4247 last Thursday following news of the debt rescue plan.

  It still looked set to end the month up nearly 5 percent for its best monthly performance in just over a year, but speculation about a possible interest rate cut on Thursday by the European Central Bank could limit its upside for now.

  The dollar could also come under pressure with Federal Reserve Chairman Ben Bernanke likely to repeat his disappointment at the pace of economic recovery when the Fed ends its two-day policy meeting on Wednesday.

 

  EUROPEAN DEBT PLAN DOUBTS

  Equities gave back some of last week's gains as the decline in metal prices on a firmer dollar hit mining stocks and banking shares came under renewed selling.

  U.S. equities were set to open lower after four weeks of gains, with S& P index futures < .SPc1> losing 0.9 percent and the Dow Jones Industrial average futures < DJc1> down 0.7 percent.

  The MSCI world equity index fell 1.2 percent, pulling back from its highest levels in nearly three months hit last week as the European plan to resolve the debt crisis spurred a relief rally.

  The pan-European FTSEurofirst 300 index was 1.3 percent lower, after rising 4.1 percent last week, while emerging stocks shed 0.85 percent.

  Jeremy Batstone-Carr, a strategist at Charles Stanley, said doubts about the euro zone plan were also weighing on equities. " Last week we saw a huge rise in equity markets largely on the revelation of a structure of a plan, with no detail on the funding," he said.

  Japan told the head of Europe's bailout fund on Monday that it would continue to buy its bonds, but, like fellow potential investor China, did not commit to putting cash into a mooted special purpose vehicle to enhance the rescue fund's firepower.

  U.S. and German government bond prices advanced as peripheral euro zone government debt came under renewed pressure on ebbing euphoria over Europe's crisis-fighting plan.

  " For all the talk of a comprehensive plan, we haven't yet had anything that can be implemented," said Gary Jenkins, head of fixed income at Evolution Securities.

  Italian 10-year government bond yields climbed back above 6 percent to levels last seen August before the ECB stepped in to buy Spanish and Italian debt in the secondary market.

  Scepticism over whether the struggling government of Prime Minister Silvio Berlusconi can deliver vital fiscal reforms has drawn Italy into the heart of the crisis, driving its borrowing costs up. German Bund futures < FGBLc1> jumped more than a full point to 134.85.

  The past week's meeting of euro zone leaders left unclear how the fund -- the European Financial Stability Facility -- was to increase its firepower, a key part of the agreement.

  Investors are wary that a summit this week of leaders from the world's 20 leading economies may disappoint with a lack of further details on plans for the rescue fund.

  The meeting will also be watched for coordinated efforts or pledges to help stabilise world financial markets, which have been battered this year by the euro zone debt crisis and a slowing world economy.

  Spot gold prices fell more than 1 percent as the spike in the dollar spooked precious metals investors. Spot gold was last about 1 percent down at $1,723.59, having dropped nearly 2 percent earlier. (Additional reporting by Jessica Mortimer, Kirsten Donovan and Brian Gorman Editing by Toby Chopra)