TOKYO - European stock index futures fell on Tuesday, after global stocks sank to a 15-month low, as investors shed riskier assets on growing doubts over Greece's ability to avoid default that fuelled fears of global financial turmoil and recession.

Concerns over the banking sector's exposure to euro zone sovereign debt and plummeting asset values across the board prompted a further sharp widening of credit default swaps.

With private sector economists cutting growth forecasts in the face of a darkening economic picture, the weakening outlook for industrial demand weighed on copper and oil, while flight-to-safety strengthened gold, the yen and the dollar.

"Investors are cutting their exposure to risk as the most extreme risks - such as Greek default - are looming closer than they expected," said Jung Sang-jin, a senior fund manager at Dongbu Asset Management.

MSCI's broadest index of Asia Pacific shares outside Japan ?fell as much as 2.6 percent to just above a 16-month low hit in late September before recovering slightly. It fell about 3.6 percent on Monday and is 30 percent below its 2011 high in April.

Economists at Goldman Sachs said they now expected the euro area to slip into recession beginning in the fourth quarter, and cut their 2012 growth forecast for the United States to 1.4 percent, from 2 percent, as the crisis bites.

ING also cut its growth forecasts for the developed world.

The MSCI All-Country World index fell as much as 0.7 percent to its lowest level since July 2010, adding to declines on Monday, when bank shares were battered.

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"Bigger than Lehman"

Franco-Belgian financial group Dexia vowed on Tuesday to clean up its balance sheet after concerns about its exposure to Greece, and a Belgian newspaper report said the ?bank will be split up into "good" and "bad" assets. ?

Japan's Nikkei fell to a 6-1/2-month low as a sell-off in commodities pushed trading houses lower and the Greek woes pressured the financial sector.

"We could be in for a shakeout even larger than the Lehman shock," said Hideki Amikura, forex manager at Nomura Trust Bank.

The massive selling pressures prompted some authorities to step in to help restore some order.

The Korea Exchange temporarily suspended programme sales on the main Korea Composite Stock Price Index in early trade on Tuesday due to drastic falls in futures as the broader market tumbled more than 5 percent.

Taiwan funds were seen stepping into the local market to prop up heavyweights such as Taiwan Semiconductor Manufacturing Co, the world's top contract chipmaker, helping the market erase earlier losses to trade flat.

European stock index futures pointed to a sharp drop when trading starts, with futures for the Euro STOXX 50 , Germany's DAX , France's CAC-40 down 1.6-1.7 percent.

 

CDS widens

As credit markets feel the strain, the iTraxx Asia ex-Japan investment grade index widened by 13 basis points on Tuesday, after expanding 15 bps on Monday. ?

"Banks are faced with concerns over their exposure to Europe's debt, but on top of that, the latest market tumble also brings to light that it is also weakening banks' financial strength as they themselves are investors," said Akane Enatsu, credit analyst at Barclays Capital in Japan.

"Banks are in a bind and they can't get out of the situation," she said.

Europe's financials were also wider, with 5-year CDS on BNP Paribas widening by 6.5 basis points and Deutsche Bank's 5-year CDS up 5.6 basis points. ?

The market's overwhelming focus on Greece's financial woes overshadowed a better-than-expected reading from the US Institute of Supply Management's September manufacturing index and a rise in construction spending, potential evidence that the US economy can avoid a recession.

With a bleak global demand outlook, oil fell more than $1 earlier on Tuesday, pressured by the debt concerns and a stronger dollar. US crude fell to an intraday low of $75.92 a barrel, while Brent crude fell to as low as $100.50.

The yen, often regarded as safe haven, hovered near a 10-year peak against the euro while the other safe haven currency, the US dollar, firmed near a 9-month high against a basket of currencies.

Investor preference for safer assets accelerated flows into gold, pushing the market up 1 percent while copper tumbled 4 percent as investors dumped the industrial metal on worries over a slowdown in growth and turned to dollar holdings.

European policymakers met on Monday to discuss ways to leverage the euro zone's rescue fund and pressure Greece to implement agreed structural reforms.