GLOBAL MARKETS-Euro debt worries hit stocks, euro

* Euro debt worries hit stocks, euro again

* Euro loses 1 percent against dollar

* World stocks also down 1 percent

By Jeremy Gaunt, European Investment Correspondent

LONDON, Nov 26 (Reuters) - Financial markets were battered on Friday by worries over peripheral euro zone debt, knocking European stocks down 1 percent and the euro by the same amount against the dollar.

The cost of insuring against a default by peripheral euro zone countries rose again.

Wall Street also looked set to open lower following its Thanksgiving break on Thursday and a large run up of stocks on Wednesday.

Two newspaper reports were helping set the tone. The Financial Times Deutschland reported, without revealing its sources, that a majority of euro zone members and the European Central Bank were urging Portugal to apply for a financial bailout. [ID:nLDE6AP08Y]

EU Commission President Jose Manuel Barroso, the Portuguese and German governments denied the report was true.

The Irish Times, meanwhile, said officials at the International Monetary Fund and in the European Union were examining how senior bondholders could be compelled to pay some of the cost of rescuing Ireland's banks. [ID:nLDE6AP0BY]

The reports fed into general market disquiet about how the euro zone debt crisis -- created by questions about whether indebted countries' can meet bond payments -- will play out.

"Officials now seem to be pressing Portugal to take aid and that's unsettling investors. Peripheral issues are unlikely to go away in the short-term and the euro will remain under pressure into the end of the year," said Manuel Oliveri, currency strategist at UBS in Zurich.

In the past month, there have been some hefty losses in euro/dollar and on European bourses as a result of the crisis. The reaction has not yet, however, matched those seen in May and June around the time of the Greek crisis.

This is in large part because of the creation of a bailout mechanism involving the European Union and International Monetary Fund.

The EU is attempting to create a more permanent mechanism, but the various proposals floated for what it might contain have created highly volatile markets.

The irony is that it is occurring just as the world economic recovery is gaining traction.

EURO SLIDED

The euro fell around 1 percent against the dollar to fresh two-month lows while the dollar was boosted by various factors, ranging from rising optimism about the U.S. economy to tensions in the Korean peninsula.

The euro was at $1.3223, levels last seen in September.

European shares fell, with banks in particular in focus.

The FTSEurofirst 300 <.FTEU3> index of top European shares was down 1.4 percent, although it is still up around 67 percent from its lifetime low in March 2009.

"It is amazing how resilient markets have been considering the financial explosions we have had in Europe and the gunfire in Korea," said Justin Urquhart Stewart, director at Seven Investment Management.

"The market is still trying to find where it goes next. A lot of people may well be saying 'I will take my profits and square the books'."

MSCI's all country world index <.MIWD00000PUS> was down 1 percent and its emerging market benchmark <.MSCIEF> lost 1.6 percent.

Ireland's 10 year bonds were yielding 8.9 percent, Portuguese counterparts 7.2 percent and Spanish 10-year debt 5.3 percent.

By contrast, German Bunds yielded 2.6 percent. (Additional reporting by Brian Gorman and Neal Armstrong, editing by Mike Peacock)