Oil at 5-Year Low, Currencies Battered

Oil hits five-year low, leads commodities rout; Oil-linked rouble, ringgit plumb record lows.

Oil prices hit five-year lows on Monday as slowing factory activity in China and Europe added to the impact of OPEC's decision to maintain supply, hammering resource-linked stocks and currencies.

Russia's rouble was down 8 percent from Friday's Moscow close, though its losses were almost halved after what traders said may have been intervention by the central bank. The rouble remained on track for its steepest one-day fall since 1998, when a financial crisis led Russia to devalue the currency and default on its debt.

The Malaysian ringgit, also oil-dependent, hit a record low and was set for its biggest two-day fall since the 1997-8 Asian financial crisis.

Plunging prices for oil and other commodities raised fears of deflation, especially in the euro zone and Japan, and the prospect of looser monetary policy pushed the yen to a seven-year low against the dollar.

The yen took another brief hit after Moody's Investors Service cut Japan's credit rating.

Mining and oil firms led European shares lower, though airlines, which benefit from cheaper fuel, rose. Wall Street was set to open weaker, according to stock index futures.

"Over-optimistic global growth forecasts have been pared back, and probably rightly so, and also China has come back on to the radar. And that of course has become a big driver for a lot of commodity prices," said Neil Williams, chief economist at fund manager Hermes in London.

World oil prices are down 40 percent since June, largely on abundant supply. OPEC last week declined to cut production to raise prices. Brent crude fell as low as $67.53, its lowest since October 2009, before picking up to $69.80.

"The market is still very much in panic mode," said Energy Aspects' chief oil analyst Amrita Sen.

Chinese purchasing managers (PMI) data showed manufacturing slowed in November, suggesting the world's second biggest economy was still losing momentum. Factory activity also slowed in France and Germany.

The FTSEurofirst 300 index fell 0.5 percent. MSCI's broadest index of Asia-Pacific shares outside Japan fell 2 percent, hitting six-week lows. Emerging market shares tracked by MSCI fell 1.5 percent.

However, Tokyo's Nikkei stocks index hit its highest close for more than seven years as cheap oil lifted airlines.

Yields on low-rated euro zone government bonds dipped as investors bet the European Central Bank, which meets on Thursday, would eventually deliver more stimulus. The five-year five-year forward -- the ECB's favourite measure of market inflation expectations -- dropped 4 basis points on Monday to 1.74 percent. <ID:EUIL5YF5Y=R>

The euro was flat at $1.2456 on Monday. The yen, which hit a low of 119.15 to the dollar after the ratings cut, was last at 118.47, up 0.1 percent.

Gold fell more than 2 percent at one point to $1,142.90 per ounce, a more than three-week low, after Swiss voters rejected a proposal to force the central bank to more than double its gold reserves.

The metal later rebounded to $1,172.47, up 1 percent on the day, with demand boosted by the cut to Japan's credit rating.

The Swiss National Bank had said the proposal could threaten its 1.20 Swiss franc cap against the euro.

The franc dipped to 1.2030 per euro, a three-week low, though some analysts say the prospect of looser ECB monetary policy could put the cap under pressure again.

By Nigel Stephenson