* World stocks falter
* China cuts interest rates by 108 bps
* EU proposes fiscal stimulus after Fed's $800 bln plan
* Investors concerned about cost of stimulus packages
(Adds quotes, updates prices)
By Veronica Brown
LONDON, Nov 26 (Reuters) - World stocks struggled on Wednesday, with European and Japanese markets falling, while the low-yielding Japanese yen rose as investors weighed the cost of global fiscal stimulus packages to boost flagging economies.
Wall Street looked set for a poor opening.
The European Commission proposed a 200 billion euro stimulus package aimed at giving the floundering economy a boost, following the U.S. Federal Reserve's $800 billion effort to bolster credit and mortgage markets.
China also cut interest rates by 108 basis points, a move aimed at ensuring liquidity in the banking system and supporting economic growth.
But positive reaction to the financial resuscitation efforts battled with concern about the bottom-line impact on government balance sheets.
"The stimulus packages are a first step and are welcome, but the fundamentals across the world are still negative and recession fears are not fading," said Antje Prafcke, currency strategist at CBCM in Frankfurt.
"There are still concerns about whether the measures will work and how they will be financed," she added.
Real economy malaise continued to deter risk-taking. Toyota Motor Corp had its top-notch credit rating cut for the first time in a decade.
World stocks as measured by the MSCI index were 0.5 lower, while European stocks dropped 1.5 percent . Tokyo's Nikkei 225 index earlier fell 1.3 percent.
Oil shares lead European stocks lower despite a modest pickup in crude prices, adding to a general air of deflating sentiment as investors wondered what it would take to get interbank markets working properly again.
"You can't force banks to lend if they don't want to. Earnings worries are still there," said Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin.
Interbank lending rate ranges for three-month dollar, euro and sterling funds held relatively steady versus a day ago, while spreads between interbank and expected policy rates stayed at high levels.
YEN STILL FAVOURED
Bond investors paid record premiums to insure against a U.S. default on its Treasury debt. While still small compared with premiums for smaller economies' government bonds, the widening in U.S. credit default swap spreads showed nagging worries about the unprecedented scale of the bailouts.
Scepticism about the Fed's and other stimulative packages kept investors' preference for the yen intact.
The low-yielding Japanese unit, a bellwether of attitudes towards risk, stayed firm versus the euro at 123.33 yen, but gains were trimmed after the China rate cut. Aversion to riskier positions also kept the dollar well-supported against a basket of currencies and the euro.
While most analysts expected the yen's outperformance to continue in the face of the crisis, others said rapidly changing monetary policy could hamper its rally.
"The China rate cut reinforces the notion of global coordinated action to counter the downside risks to the global economy, which will erode the attraction of the yen safe haven quality," said Lena Komileva, G7 market economist at Tullett Prebon.
Looking ahead, investors braced for U.S. economic data, including the Chicago PMI at 1445 GMT and the reading of consumer sentiment.
The release of the figures was brought forward ahead of the U.S. Thanksgiving holiday on Thursday.