* World stocks in broad-based sell off, near 14-year lows
* FTSEurofirst loses 2.3 percent, Japan's Nikkei at 26-year low
* Wall Street set for losses
* Dollar firms against major currencies
By Jeremy Gaunt, European Investment Correspondent
LONDON, March 9 (Reuters) - World stocks sank towards 14-year lows in a broad-based sell off on Monday, dragged lower in Europe and Asia by economic gloom and worries about the U.S. banking system.
Wall Street looked set to join in the decline.
Japan recorded its largest current account deficit on record, underlining the economic headwinds that continue to buffet investors.
MSCI's all-country world stock index was down 1.2 percent, bringing year-to-date losses to around 24 percent.
The index, a benchmark for major investors, is only a few percentage points away from lows reached in 1995, before that decade's Russian and Asian crises.
"The recession is very dire. You have an incredible rise in risk premium so people expect the worst. Banking results are getting worse," said Giorgio Radaelli, chief strategist at wealth manager BSI in Switzerland.
Investors remain particularly concerned about the banking sector, with uncertainty about the potential nationalisation of U.S. banks weighing hard.
European shares fell, with the pan-European FTSEurofirst 300 index of top shares down 2.3 percent. The broader STOXX 600 was also down 2.4 percent, hitting its lowest level since September 1996.
Earlier, Japan's Nikkei average fell 1.2 percent to a 26-year closing low. The broader Topix slipped 1.5 percent to a fresh 25-year low.
Export giant Japan's current account balance swung to its largest deficit on record in January, with the income surplus tumbling about a third from a year earlier.
It was the first deficit in 13 years.
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WEAK YEN
The current account news helped knock the yen down broadly, while the dollar benefitted from repatriation of funds and safe-haven seeking.
The dollar gained around half a percent against the yen to 98.77 yen.
"The yen is likely to remain weak, particularly as we head into the fiscal year-end, and since the Japanese authorities have indicated that they want the currency to weaken," BNP Paribas currency strategist Ian Stannard said.
Meanwhile, the euro lost half a percent against the dollar to $1.2571 as the weak equity markets left the single currency struggling to correct recent sharp falls.
On euro zone government debt markets, The 10-year cash Bund yield was down around 2 basis points at 2.913 percent.
But shorter-dated paper underperformed, with the interest rate-sensitive two-year Schatz yield up 8 basis points at 1.239 percent. Bond yields move inversely with prices. (Additional reporting by Jessica Mortimer)
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