GLOBAL MARKETS-Stocks plunge, yen leaps as crisis escalates

* MSCI world equity index down 2.8 pct at 275.44

* Oil, emerging stocks also tumble as credit fears escalate

* Government bonds, gold, low-yielding yen soar

By Natsuko Waki

LONDON, Oct 6 (Reuters) - World stocks plunged to three-year lows on Monday as investors fled to government bonds, gold and the low-yielding yen, fearing policymakers' efforts to contain the credit crisis might not be enough to prevent a recession.

Oil fell 4 percent to eight-month troughs and emerging stocks tumbled 6 percent as the worst financial crisis in 80 years spread in Europe, where more governments were forced to offer bank deposit guarantees due to a growing number of bank failures.

Panic selling of shares in Russia prompted two stock exchanges to halt trading while some banking shares in Iceland and Italy were also suspended.

In South Korea, banks were having trouble raising foreign currency funds and the government promised to give banks access to the country's foreign exchange reserves, the world's sixth largest at nearly $240 billion.

Despite weeks of huge liquidity injection by central banks, money markets remained tight, reflecting deep reluctance by banks to lend to each other.

"We have a seriously weak and fear-driven market on our hands," said Tom Hougaard, chief market strategist at City Index.

The FTSEurofirst 300 index <.FTEU3> fell 4.7 percent while MSCI main world equity index <.MIWD00000PUS> lost 2.8 percent to its weakest level since May 2005. The index has shed 31 percent since January.

U.S. stock futures fell 2.2 percent , indicating a sharply lower opening on Wall Street later.

A flurry of measures by countries around the world is doing little to calm investor nerves. Germany, Austria and Denmark followed Ireland in guaranteeing private deposit accounts after European leaders failed to agree a concrete common rescue scheme at a weekend meeting in Paris.

Leaders from France, Britain, Italy and Germany and European Central Bank President Jean-Claude Trichet promised to take all steps needed to ensure financial stability and to coordinate.

The emergency summit came as the U.S. government enacted a landmark $700 billion bank bailout on Friday.

"The arctic credit ice thickens. (Various) governments dispatch all manner of credit ice breakers. Yet the credit ice still thickens," Barclays said in a note to clients.

ICELAND FIGHTS AGAINST MELTDOWN

The yen surged 1.7 percent to 103.22 per dollar while the euro hit a 13-month low of $1.3542 . The dollar <.DXY> rose 0.3 percent against a basket of major currencies.

Turmoil escalated in Iceland, where the crown currency fell nearly 19 percent on the day to hit a record low of 199.99 to the euro , according to the Reuters dealing system.

The government is scrambling to avert a financial meltdown after authorities also failed to agree any specific measures over the weekend.

The interbank cost of borrowing euros for three months rose to 5.33750 percent at the daily fixing in London, more than 100 basis points above the ECB's benchmark interest rate.

For the dollar, three-month interbank rates were 4.28875 percent. This compares with market expectations that the Federal Reserve will have cut interest rates to 1.50 percent by January, half a percentage point below the current rate.

The December Bund future rose 113 ticks, drawing in funds seeking safer assets. Gold , seen as a safer asset, rose to $842.80 an ounce.

Emerging sovereign debt spreads <11EMJ> widened 11 basis points while emerging market stocks <.MSCIEF> lost 6.3 percent. In Russia, the main exchange indexes lost 14-15 percent <.IRTS> <.MCX>.

U.S. light crude fell 4.2 percent to $89.91 a barrel as concerns grew but the slowing economy would choke off energy demand.