World stocks slipped on Wednesday after reports of bank lending restrictions in China, while the euro hit a five-month low against a broadly stronger dollar with concerns about Greece's fiscal problems nagging investors.

Official media and banking sources said Chinese authorities had instructed some major banks to curb their lending over the rest of this month after an early burst of credit. The central bank has also told some individual lenders to increase their reserve requirement ratio by half a percentage point.

Signs of tighter policy in China weighed on higher-yielding commodity currencies such as the New Zealand dollar, leading to a stronger dollar across the board.

That in turn hit the euro, which was already under pressure from flagging market confidence in Greek public finances and a report on Tuesday showing a bigger-than-expected decline in German investor sentiment.

Asia has been weak on the Chinese authorities curbing lending growth. I think Europe is reacting to China again, said Bernard McAlinden, investment strategist at NCB Stockbrokers. MSCI world equity index <.MIWD00000PUS> fell 0.4 percent, having hit its highest in 15 months earlier this month. Chinese stocks <.SSEC> lost nearly 3 percent.

The FTSEurofirst 300 index <.FTEU3> dropped 0.16 percent while emerging stocks <.MSCIEF> fell 0.6 percent.

U.S. crude oil fell 0.8 percent to $78.37 a barrel on worries that China's tightening may weaken energy demand.

Bund futures rose 18 ticks.

FAIR WEATHER CURRENCY?

The dollar <.DXY> rose half a percent against a basket of major currencies while the euro fell as low as $1.4168.

Benchmark 10-year bond yield spreads between safer Germany and Greece widened to 279 basis points from 265 basis points.

For graphic, click on: http://link.reuters.com/mug64h

Greece's ballooning debt level, estimated at more than 120 percent of gross domestic product, has prompted speculation that the country may be unable to service its obligations.

The European Union and rating agencies piled pressure on Greece on Tuesday to quickly implement budget reduction plans resisted by trade unions.

Standard & Poor's and Moody's said it was key for Greece to start immediately cutting its budget deficit, which hit 12.7 percent of gross domestic product in 2009.

The fiscal difficulties of Greece and other euro zone countries have confirmed the view that the euro was a fair weather currency, which only works well while the economy is doing well and is not interrupted by anything more than the mini recession in 2001, Commerzbank said in a note to clients.

The recession made the design flaws of the euro very obvious to see.

(Additional reporting by Joanne Frearson, editing by Mike Peacock)

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