World stocks fell on Thursday while the dollar edged lower as a better-than-expected trading update by Barclays failed to wipe away broader credit concerns.

There was renewed concern about liquidity as short-term interbank lending rates for sterling edged higher. Traders were paying a higher premium for cash covering the year-end, a period when liquidity usually dries up.

Barclays, Britain's third-largest bank, said its investment bank unit made a 1.3 billion pound ($2.67 billion) writedown due to its credit market exposure in the four months to end-October. Bob Diamond, head of investment bank arm Barclays Capital, said it would take one to two years for subprime problems to work through.

The Barclays statement represents current knowledge of their problems. It doesn't necessarily mean that there won't be problems in the future, said Peter Dixon, UK economist at Commerzbank.

Uncertainties still remain the order of the day.

MSCI's main world equity index was down 0.6 percent, edging further away from this month's record high.

The FTSEurofirst 300 index was down 0.9 percent, dragged down by falls in Royal Bank of Scotland and Sanofi-Aventis. U.S. stock futures were down 0.6 percent, pointing to a weaker open on Wall Street.

U.S. consumer prices rose a brisk 0.3 percent in October, in line with expectations. A New York Federal Reserve survey showed growth in New York state manufacturing sector slowed in November. Interest rate futures price in a 86 percent chance of a December Fed interest rate cut -- a factor weighing on the dollar.

TENSION UP IN MONEY MARKETS

London interbank offered rates for three-month sterling rose to 6.34250 percent, up from Wednesday and 48 bps above expected UK interest rates in three months' time. Two-month rates, which cover the new year period, rose above the three-month level.

Interbank lending rates have remained elevated since August as banks hoarded cash as a contingency against potential losses from their exposure to off-balance sheet vehicles.

In the FX market, the dollar was down 0.2 percent at $1.4636 per euro and down 0.6 percent at 110.70 yen.

The fog has not yet cleared on the effects from recent market turbulence. There is a continued environment of uncertainty and this is being felt in the FX market, said Phyllis Papadavid, currency strategist at Societe Generale.

The iTraxx Crossover index, most-widely watched indicator for European credit market sentiment, was 10 basis points wider at 366 bps.

Emerging sovereign spreads widened 2 bps while emerging market stocks were down 0.9 percent.

The December Bund future was up 13 ticks.

U.S. light crude was down 0.4 percent at $93.70 a barrel, off last week's record high above $98. Gold was slightly lower on the day at $800.70 an ounce.

(Reporting by Natsuko Waki, additional reporting by Dominic Lau and Simon Falush)

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