* MSCI world stocks index drops to two week low Europeequitieshead for fourth day of losses
* U.S. stimulus deal seen 'elusive' before Nov. 3 election
* Oil markets steadies after heavy tumble
* Yuan sticks around 2018 highs, Turkey expected to hikerates
* Graphic: 2020 asset performance
* Graphic: World FX rates in 2020 By Marc JonesLONDON, Oct 22 (Reuters) - World shares slipped to atwo-week low and oil steadied after another heavy fall onThursday, as the global surge in COVID-19 cases and fractiousU.S. stimulus talks kept financial markets cautious.U.S. traders were digesting a drop in weekly jobless claimsahead of Wall Street trading, but with Europe'sbourses battling to avoid a fourth consecutive drop and pre-U.S.election paralysis setting in, the conditions were choppy.Disappointing German consumer morale data meantit was the first dip of the week for the high-flying euro while Turkey's lira went tumbling again as its centralbank baulked at hiking interest rates. Europe has seen coronavirus cases surge to a record high,with Spain becoming the first Western European country to exceed1 million infections and France, Britain and Italy all seeingrecent record increases.Bond market caution also ushered sensitive Italiangovernment debt yields higher though there was also roaringdemand for a 30-year bond sale there and the early drift backinto ultra-safe German Bunds didn't last past lunchtime."In the summer we were in the eye of the storm, I think,"said Rabobank strategist Piotr Matys, likening the drop inCOVID-19 cases to the lull that occurs in the middle ofhurricanes.
"Some governments assumed the worst was over ... but now theinvisible enemy is hitting even harder and I am worried aboutthe fragile economic recovery."Sentiment was also being buffeted after U.S. PresidentDonald Trump accused rival Democrats on Wednesday of beingunwilling to craft an acceptable compromise on fresh stimulus,following reports of progress earlier in the day. It remains unclear whether negotiations will continue aheadof the U.S. presidential and congressional elections on Nov. 3although the subject may come up later when Trump and Joe Bidengo head-to-head in the final presidential debate. "We still think that this deal will remain elusive in thesense that this amount that we are talking about, $1.88trillion, that's about 9% of GDP, said Carlos Casanova, a senioreconomist at Union Bancaire Privee (UBP) in Hong Kong.Speaker Nancy Pelosi's package is even higher at around 10%of GDP."Even if both sides do manage to reach an agreement, giventhe tight deadline ahead of the election it's unlikely thatsomething like that would be able to go through the Senatesmoothly," said Casanova.In the currency markets, the dollar was a modest 0.1% higheragainst the yen at 104.65 , while the euro's dip saw it notch down 0.3% to $1.1820.But against a basket of major peers the dollar appeared relatively unaffected by setbacks to stimulus talks,steadying after touching a seven-week low to trade slightlyhigher at 92.736.Overnight, MSCI's broadest index of Asia-Pacific sharesoutside Japan had slipped 0.3%, while the Nikkei closed 0.7% lower. ELECTION LOOMINGUncertainty over the passage of a bill to stimulate apandemic-ravaged economy comes as the United States also faces anew wave of COVID-19 cases.Nearly two-thirds of U.S. states were in a danger zone ofcoronavirus outbreaks and six, including election battlegroundWisconsin, reported a record one-day increase in COVID-19 deathson Wednesday. Wall Street's three major averages closed lower on Wednesdayafter a choppy trading session, and futures markets pointed toanother subdued start later. "The focus is absolutely on how a decisive win in thiselection can unlock fiscal stimulus," J.P. Morgan AssetManagement global market strategist Hugh Gimber said, warningthat investors need to treat next month's U.S. vote with care.The yield on benchmark U.S. 10-year Treasury notes ticked down to 0.8092%, from a U.S. close of 0.816%on Wednesday.
In commodity markets, oil prices steadied after sharp losseson Wednesday, when higher U.S. gasoline inventories pointed to
deteriorating fuel demand again.U.S. West Texas Intermediate (WTI) crude futureshovered near $40 a barrel and Brent crude futures were0.5% higher at $41.19.
Gold eased as the dollar edged up, with spot gold down 0.4% at 1,916 per ounce. Turkey's lira was one of the day's biggest movers,cartwheeling more than 1.5% to new record low.
The country's central bank showed its unpredictable sideagain by holding its main interest rates steady despiteexpectations for a major hike. "It is a frustration because they had been starting to looka bit more credible recently by tightening (rates)," saidRichard Briggs at investment manager GAM. "But now they aregoing back to this unconventional policy."<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Global assets Global currencies vs. dollar Emerging markets MSCI All Country Wolrd Index Market Cap Emerging market currencies being split by U.S. election Coronavirus vs financial markets ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Marc Jones; Editing by Catherine Evans)
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