World stocks drop on Europe woes, euro eases

By Caroline Valetkevitch

NEW YORK (Reuters) - World stocks fell and the euro eased on Thursday on more doubts about the euro zone's ability to come up with a comprehensive plan for its debt crisis at this weekend's summit meeting.

A report said the German government does not rule out postponing the European Union summit planned for this Sunday.

French President Nicolas Sarkozy said on Wednesday that plans to tackle the crisis had stalled with Paris and Berlin at odds over how to increase the region's bailout mechanism, the European Financial Stability Facility.

The reports are the latest to splash cold water on optimism that the weekend meeting of EU leaders in Brussels would come up with a substantial plan for dealing with the debt crisis.

Citing sources from both Chancellor Angela Merkel's centre-right coalition and from her government, German newspaper Die Welt said the stalled negotiations on the possible leveraging of the euro zone bailout fund was the reason for the possible delay.

"We have the EU summit this weekend and there's probably a decent chance that we don't have any concrete proposals in place," said Ronald Simpson, managing director of global currency analysis at Action Economics in Tampa, Florida.

World stocks as measured by MSCI tumbled 1.4 percent, while European shares dropped 1.3 percent.

Wall Street stocks also declined, brushing aside upbeat data showing U.S. Mid-Atlantic factory activity rebounded in October.

The Dow Jones industrial average was down 54.03 points, or 0.47 percent, at 11,450.59. The Standard & Poor's 500 Index was down 5.98 points, or 0.49 percent, at

1,203.90. The Nasdaq Composite Index was down 29.35 points, or 1.13 percent, at 2,574.69.

The Philadelphia Federal Reserve Bank said factory activity in the U.S. mid-Atlantic region unexpectedly expanded in October to its highest level in six months, helping the view that the U.S. economy recovery is progresssing, albeit at a slow pace.

The euro was last down 0.1 percent at $1.3741.

U.S. Treasury prices turned higher, reversing earlier losses. Benchmark 10-year notes were last up 3/32, yielding 2.15 percent.

Earlier, bond prices were down as guidelines on the euro zone's rescue fund indicated that the facility would be able to buy bonds in the secondary market.

For debt crisis in graphics: click http://r.reuters.com/hyb65p

For government bond spreads: click http://r.reuters.com/kus82s

For asset returns in 2011: click http://r.reuters.com/suz52s

OIL JUMPS, GOLD FALLS

News that deposed Libyan leader Muammar Gaddafi had died of wounds suffered in his capture near his hometown of Sirte on Thursday had little market impact.

Brent crude oil prices gained more than $1 a barrel, with the steady return of Libyan oil exports accounted for and unaffected by Gaddafi's death.

"The regime had already fallen," said Olivier Jakob, oil analyst at Petromatrix. "It will bring additional peace to the country but oil exports are already in the process of coming back -- so there is no great change to the short-term supply and demand picture."

Gold, meanwhile, fell for a fourth consecutive day.

Solid earnings helped to limit losses in stocks. Among advancing stocks, Nokia shares were up 6.1 percent after hit a near-five month high, after the phonemaker beat third-quarter forecasts, helped by strong sales of basic cellphone models. U.S.-listed shares of Nokia jumped 6.2 percent to $6.50.

(Reporting by Caroline Valetkevitch in New York and Jeremy Gaunt in London, additional reporting by Wanfeng Zhou in New York and Claire Milhench in London)