* MSCI world equity index down 1.3 percent at 205.40
* Euro zone manufacturing shrinks again; factory prices down
* Euro hits 2-month low vs dollar; govt bonds firmer
By Natsuko Waki
LONDON, Feb 2 (Reuters) - World stocks hit a one-week low and the euro set a two-month trough against the dollar on Monday as jitters intensified about poor economic data and falling corporate profits in a rapidly slowing global economy.
A closely-watched euro zone survey showed the region's manufacturing business shrank again albeit at a slower pace in January while factory prices tumbled at their fastest rate in at least six years, leaving scope for further interest cuts from the European Central bank.
Furthermore, investors are braced for a slew of fourth-quarter corporate earnings especially from the United States which are likely to show deteriorating profits.
"People are getting incrementally bearish about the earnings outlook," said Ad van Tiggelen, senior strategist at ING Investment Management in Amsterdam. "With economies contracting, a 50 percent fall in earnings is realistic."
The MSCI world equity index fell 1.3 percent, hitting its weakest in level in a week.
In London, where heavy snow is paralysing the transport system, stocks dropped 2 percent.
Barclays fell more than 10 percent after Moody's cut its long-term ratings as it expects significant further losses due to credit-related writedowns and rising impairments.
The FTSEurofirst 300 index of leading European shares lost 2.6 percent.
Rio Tinto was a bright spot as it soared more than 6 percent at one point. Two sources with direct knowledge of the situation said state-owned Chinese aluminium company Chinalco is in talks with China Development Bank to secure financing for a potential deal with the mining giant.
U.S. stock futures were lower, pointing to a weaker open on Wall Street later. Emerging stocks fell 2 percent.
U.S. crude oil fell to $40.50 a barrel.
Safer government bonds rose across the board as stocks and other risky assets underperformed. The March bund future rose 47 ticks.
The euro fell as low as $1.2707, losing nearly 9 percent since the start of the year.
"With the ECB already considered to be behind the curve and the European economy slowing, much of the bad euro news is already out in the price," Calyon said in a note to clients.
The low-yielding yen rose more than 1 percent to 88.82 per dollar while the U.S. currency was up 0.6 percent against a basket of major currencies.
Sterling fell sharply to $1.4083 having posted its biggest rise in 20 years last week of over five percent. The British currency fell nearly 3 percent against the euro to 90.80 pence. (Additional reporting by Brian Gorman; Editing by Victoria Main)