(Refiles to change word to 'fall' from 'falling' in 3rd paragraph)
* MSCI world equity index down 0.7 percent at 188.99
* Citi, Lloyds hit stocks; drugmakers down on profit worry
* Dollar hits 3-month high; low-yielding yen firmer
By Natsuko Waki
LONDON, Feb 27 (Reuters) - World stocks slipped towards this week's 6-year low and oil tumbled on Friday while the dollar hit a three-month peak as financial shares came under pressure after news the U.S. government will take a large stake in Citigroup.
The U.S. Treasury said it will convert up to $25 billion of Citi's preferred shares into common stock. The news fanned concerns that other banks might see a similar action.
In Britain, Lloyds Banking Group fell more than 20 percent at one point after it unveiled a massive loss for 2008 and said it had not yet finalised details of its plan to put billions of pounds of assets into a UK government-backed insurance scheme.
"There's a feeling that the banks might need yet more capital and nationalisation is back on the agenda both here and in the U.S., it looks as if there's no end in sight," said Graham Exton, fund manager at Tilney Investment Management in Liverpool. MSCI world equity index fell 0.9 percent, closing in on the six-year low set Tuesday. The index is down more than 9 percent this month.
The FTSEurofirst 300 index fell 2.9 percent.
Drugmakers fell broadly on profit concerns as U.S. President Barack Obama's budget proposals for 2010 takes direct aim at the sector to help fund an overhaul of the U.S. healthcare system.
U.S. stock futures turned lower after Citi's news, with the S&P futures down more than 1.2 percent.
"Despite the fact that shares are extremely cheap on every parameter, confidence of investment sentiment is extremely low," Jeremy Batstone-Carr, head of private client research at Charles Stanley.
"My suspicion is that confidence will begin to improve once some indication emerges from the macro backdrop that a corner has been turned."
Emerging stocks were down 1.2 percent even after global development banks launched a coordinated two-year plan to lend up to 25 billion euros to shore up banks and businesses in crisis-hit eastern and central Europe.
The action plan by the World Bank, European Bank for Reconstruction and Development and European Investment Bank came as European Union members prepare to discuss aid to banks at an emergency summit on Sunday.
U.S. crude oil fell 2.8 percent to $43.92 a barrel.
The March bund futures rose 50 ticks.
The dollar rose to a three-month high against a basket of major currencies. The yen rose 1.1 percent to 97.34 per dollar. (Additional reporting by Simon Falush and Dominic Lau; Editing by Victoria Main)