World stocks hit a 2-1/2 week low on Tuesday while oil and the euro also
slipped as investors grew nervous over the funding situation of banks
about to repay 442 billion euros ($545.5 billion) to the European
Central Bank.

Banks must repay the money borrowed a year ago at
rock bottom rates on Thursday, leaving a potential liquidity shortfall
in the financial system of over 100 billion euros.

The ECB holds
a three-month tender on Wednesday which many in the market expect will
be tapped as banks scramble to pay back the one-year funds. Expectations
are that 210 billion euros will be allotted at the offer.

“There's
concern over the ECB expiry of the massive liquidity facilities member
state banks have been enjoying … We're seeing a real sense of
uncertainty about the market at the moment, a real lack of conviction,”
IG Markets analyst Ben Potter noted.

“When we have that there's a
natural tendency for the market to drift lower, which is what we're
seeing.”

The state of banks will become clearer when the details
of bank stress tests are published next month.

Sources told
Reuters on Monday more than 100 banks in Europe will be examined in a
second round of stress tests to gauge how they can handle shocks to the
financial system. MSCI world equity index fell 1 percent while the
FTSEurofirst 300 index lost 1.6 percent.

Emerging stocks dropped
by 1.8 percent.

Chinese stocks fell 4 percent to a 14-month low
as investors started pulling funds from the market to prepare for a
major initial public offering by Agricultural Bank of China, pointing to
tight liquidity in China's markets.

Euro suffers
The euro fell 0.4
percent to $1.2224 while it fell to record lows of 1.3250 against the
safe-haven Swiss francs.

The euro lost 1.3 percent to 108.25
yen, just shy of eight-year lows around 108.05 set earlier this month.

“Investors
are nervous, shifting their attention back to Europe because a massive
amount of money will move there,” said Hideki Hayashi, global economist
at Mizuho Securities in Tokyo.

“The euro could revisit its
eight-year low against the yen.”

The dollar rose 0.4 percent
against a basket of major currencies.

 u.s. crude oil fell 2.2
percent after forecasts indicated tropical storm Alex would skirt the
main production region in the U.S. Gulf of Mexico, limiting disruptions
to a few precautionary shutdowns.