GLOBAL MARKETS - Credit worries haunt investors, Ifo pleases

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - Fears over the depth of the credit crisis restrained investors on Tuesday, knocking many equities lower, but Europe took succour from a positive business report and the ailing dollar recovered slightly.

News that Citigroup was to sell $7.5 billion worth of equity units, that will convert into common shares, to the Abu Dhabi Investment Authority eased some concerns about the stability of the world's financial sector.

So did a trading statement from Barclays that it was on track to meet analysts' expectations for earnings growth of 4 percent this year and that diversification had shielded it from recent turbulence in capital markets.

But overall, investors remained skittish about the future. UBS said risk aversion had increased across the board -- on equity, fixed income and currency markets.

"Everyone knows that the whole subprime (credit) issue is serious, but we still don't know how it'll affect the U.S. economy, how much of a slowdown we might see," said Takahiko Murai, general manager of equities at Nozumi Securities.

MSCI's main world stock index was flat, but its emerging market counterpart lost 0.9 percent. Emerging market sovereign debt spreads over U.S. Treasuries were steady, but only after blowing out 25 basis points on Monday to their widest since September 2005.

Both moves are signs of high investor caution.

European equities were flat, lifted from negative territory by a better-than-expected reading on German business sentiment from the Ifo institute.

The pan-European FTSEurofirst 300 index has fallen 6.5 percent this month and is down 1 percent so far this year.

Earlier, Japan managed an up day. The Nikkei closed up 0.58 percent at 15,222.85, a rise of 87.64 points. The broader TOPIX index was up by 0.8 percent at 1,478.78.

DOLLAR, BONDS

The dollar took heart from the Citigroup news, which was interpreted as a positive sign for the credit crisis.

"The market is still feeling a fair amount of jitteriness given the tensions in some financial markets ... and we are seeing the dollar recover this morning given the (Citi) news," said Phyllis Papadavid, currency strategist at Societe Generale.

The dollar pulled away from a 2-1/2-year low against the yen hit on Monday to trade at 108.24.

The euro traded 0.28 percent lower on the day at $1.4836.

Ten-year euro zone government bond yields were down, yielding 4.026 percent, and 2-year debt yields were flat at 3.641 percent. Bond yields move inversely to prices.