World stocks were on the brink of a two-month low on Friday, as beaten-down oil prices and a slide in China's yuan to 4-1/2 year lows left markets in a somber mood.
Volatile oil markets and worries about China, the world's biggest commodities consumer, have pressured many markets ahead of a widely anticipated interest rate hike by the U.S. Federal Reserve next week.
MSCI's world stock index .MIWD00000PUS fell for a fifth straight day as emerging markets tumbled again and European shares .FTEU3 opened at a two-month low while the dollar steadied.
"We are in risk-off mode," said Piotr Matys, emerging market currency strategist at Rabobank in London.
"Another round of selling in commodities with oil prices at new lows has sent global stocks lower and emerging market commodity currencies are under pressure."
The Russian rouble RUB= tumbled 2 percent against the dollar, with focus on a meeting of the Russian central bank later on Friday.
Investors were also waiting for U.S. data which could cement expectations that the Fed is gearing up to hike rates for the first time in a decade next week.
U.S. retail sales, inflation and consumer sentiment data is due between 8.30 a.m ET and 10 a.m. ET.
European shares .FTEU3 fell 0.7 percent, declining for a fourth straight session, while MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS hit a two-month low and posted a weekly loss of just over 3 percent.
YUAN LOWER AGAIN
China's yuan fell to its weakest in 4-1/2 years CNY=CFXS at 6.4564 per dollar and posted its longest weekly losing streak in a decade, dragging emerging Asian currencies lower, on concerns about its slowing economy and expectations of a U.S. rate hike next week.
Lower daily fixings for the currency by China's central bank have also raised questions about how far Beijing intends to let the currency depreciate.
"A U.S. rate hike would have a major impact on money flows out of emerging markets including Hong Kong and China," said Linus Yip, chief strategist at First Shanghai Securities.
"Also, if the yuan continues to depreciate, that's negative to stocks as well, because it means investors are not confident about China's economic restructuring."
Chinese shares closed lower .CSI300 ahead of a spate of economic data scheduled to be released on Saturday. ECONCN
China's economy is on track to post about 7 percent annual growth in 2015, an official at the country's top economic planner said at a briefing on Friday.
NEW LOW FOR OIL
Crude oil prices remained at levels not seen since early 2009 as output in the Middle East continued to rise despite an already huge global glut.
Brent crude futures LCOc1 were down 0.5 percent at $39.52 a barrel, not far off almost seven-year lows hit earlier in the session at $39.38 a barrel.
The sharp fall in oil prices since OPEC said last week it would keep production high has fueled expectations for lower inflation, helping push down European government bond yields.
The dollar index .DXY, which tracks the U.S. currency against a basket of six major rivals, edged down slightly. It was on track for a weekly loss of about 0.5 percent after investors trimmed dollar-long positions before the Fed meeting.
Fed fund futures place an 85 percent chance of the Fed raising rates at its Dec. 15-16 meeting. A recent Reuters poll also showed that all but one of 18 brokerages that deal directly with the Fed expect a rate increase.
The euro EUR= edged up about 0.2 percent to $1.0965, after comments from the European Central Bank's Ewald Nowotny this week raised doubts about the extent to which U.S. and European monetary policy will diverge.
Emerging market stocks .MSCIEF were down for an eighth day running and on course for their worst week since September.
South Africa's rand ZAR=D3 hit a new record low following the abrupt dismissal this week of respected Finance Minister Nhlanhla Nene.
(Additional reporting by Lisa Twaronite in Tokyo)
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