World stocks sank toward 14-year lows in a broad-based sell off on Monday, dragged lower by economic gloom in Europe and Asia, where Japan recorded its largest current account deficit on record.

The dollar was higher against other major currencies.

MSCI's all-country world stock index was down 1 percent, bringing year-to-date losses to around 24 percent.

The index, a benchmark for major investors, is only a few percentage points away from lows reached in 1995, before that decade's Russian and Asia crises.

The recession is very dire. You have an incredible rise in risk premium so people expect the worst. Banking results are getting worse, said Giorgio Radaelli, chief strategist at wealth manager BSI in Switzerland.

Investors remain particularly concerned about the banking sector, with uncertainty about the potential nationalization of U.S. banks weighing hard.

European shares fell, with the pan-European FTSEurofirst 300

index of top shares down 2.2 percent. The broader STOXX 600 was also down 2 percent, hitting its lowest level since September 1996.

Earlier, Japan's Nikkei average fell 1.2 percent to a 26-year closing low. The broader Topix slipped 1.5 percent to a fresh 25-year low.

Export giant Japan's current account balance swung to its largest deficit on record in January, with the income surplus tumbling about a third from a year earlier.

It was the first deficit in 13 years.

WEAK YEN

The currency account news helped knock the yen down broadly, while the dollar benefited from repatriation of funds and safe-haven seeking.

The dollar gained 0.2 percent against the yen to 98.55 yen.

The yen is likely to remain weak, particularly as we head into the fiscal year-end, and since the Japanese authorities have indicated that they want the currency to weaken, BNP Paribas currency strategist Ian Stannard said.

Meanwhile, the dollar gained against the euro as the weak equity markets left the single currency struggling to correct recent sharpfalls, which took it to its lowest level versus the dollar in more than three months last week.

The euro lost a quarter of a percent to $1.2612.

On euro zone government debt markets, The 10-year cash Bund yield was down 2 basis points at 2.906 percent.

But shorter-dated paper underperformed, with the interest rate-sensitive two-year Schatz yield up 5 basis points at 1.202 percent. Bond yields move inversely with prices.

(Additional reporting by Jessica Mortimer; Editing by Victoria Main)

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