* High stakes at G7 meeting to tackle Europe's debt crisis
* Greek default chatter, ECB's Stark quitting add worries
* Obama's US jobs plan seen blocked in political fighting
* Bund yields hit record low; U.S. yields at 60-year lows (Recasts; adds fresh quote)
By Richard Leong
NEW YORK, Sept 9 (Reuters) - Growing doubts about Europe's ability to resolve its debt crisis punished the euro and world stock markets on Friday, while G7 finance ministers met to discuss measures to revive economic growth.
The euro hit 6-1/2 month lows against the U.S. dollar on nervousness over the outcome of a Greek debt swap deal and on jitters fueled by Juergen Stark's plan to resign from the European Central Bank's board in protest over its controversial bond-buying program.
The bond buying has been one of the ECB's main weapons in fighting the debt crisis and uncertainty over support for it pummelled the euro after the ECB backed away from further interest rate rises on Thursday.
The nervousness fueled safe-haven buying of German and U.S. government debt. The 10-year Bund yield hit another record low, while 10-year U.S. Treasuries yields touched a 60-year trough.
"Europe is the No. 1 thing causing pressure on the market as the realization grows that what we've done so far hasn't worked," said Liz Ann Sonders, the New York-based chief investment strategist at Charles Schwab Corp, which has $1.65 trillion in client assets.
Stark's departure highlightd divisions within the ECB on the handling of Europe's debt woes. The ECB later confirmed Stark will step down at the end of the year. [ID:nL5E7K91CF]
"When you get a new story like this, that there's internal turmoil on the ECB, that immediately has implications for the bond-buying program, which immediately has implications on the capital level in European banks," said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.
Traders, surprised by the Stark news, were keeping tabs on developments with Greece's debt swap deal. The deal is critical for Athens to secure a second 109 billion euro bailout and avert a near-term default that could ripple across Europe and the global banking system.
Banks and insurers face a Friday deadline to indicate whether they will join an exchange of Greek debt, part of an international bailout package agreed in July. It is expected 70 percent of the private investors would agree to such a move, below the 90 percent threshold that Greece has said it wants to go through with the deal. For more, see [ID:nLDE7880AH]
The cost to insure Greek sovereign debt for five years surged to a record high of 3,106 basis points, up nearly 300 basis points on the day, according to data vendor Markit.
Finance ministers and central bankers from the Group of Seven industrialized nations were meeting in Marseille, where host France has called for a coordinated response from G7 members to deal with Europe's debt crisis and the region's shaky banks. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Take A Look G7 meeting: [ID:nL5E7K61TC]
Take A Look Obama's jobs package: [ID:nOBAMAJOBS]
Graphic on Euro zone's debt crisis
http:/r.reuters.com/hyb65p
Interest rate expectations - 2011 and 2013
http:/link.reuters.com/pej23s ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
In the United States, President Barack Obama unveiled his $447 billion plan to revive economic growth late on Thursday, but investors worried that Congress would not pass the measure and the Federal Reserve may not follow quickly enough with its own action.
Fed Chairman Ben Bernanke, in a speech on Thursday, left the door open for more monetary stimulus but withheld details on the timing and what type of measures the Fed would enact.
With half an hour of trading left in the session, the Dow Jones industrial average <.DJI> was down 343.18 points, or 3.04 percent, at 10,952.63. The Standard & Poor's 500 Index <.SPX> was down 36.31 points, or 3.06 percent, at 1,149.59. The Nasdaq Composite Index <.IXIC> was down 72.91 points, or 2.88 percent, at 2,456.23.
For the week, the Dow is on track to drop 2.7 percent; the S&P to lose 2.1 percent and the Nasdaq to slip 1.1 percent.
The FTSEurofirst 300 index of top European shares <.FTEU3> lost 2.6 percent on the day, and the MSCI world equity index <.MIWD00000PUS> was off 3.2 percent. Both indexes were down 3.7 percent on the week, their third-largest drop in the past 12 months.
Earlier, Tokyo's benchmark Nikkei <.N225> ended down 0.6 percent, bringing its weekly loss to 2.4 percent.
Another retreat in equities boosted safe-haven German and
U.S. government bond prices. The 10-year Bund yield touched an
all-time low of 1.74 percent, while the benchmark 10-year U.S.
Treasury The euro Gold slipped after soaring to a record high above $1,900 an
ounce earlier this week due to its appeal as both a safe haven
and a hedge against inflation. It was last down 1.2 percent at
$1,846 an ounce as nervous investors sold the metal on growing
concerns its run-up had been overdone. [GOL/]
(Reporting by Ryan Vlastelica, Rodrigo Campos, Chris Reese,
Barani Krishnan and Nick Olivari; Writing by Richard Leong;
Editing by Dan Grebler)