World stocks hit a three-month low on Thursday, the euro tumbled and top-rated government bonds rose as investors began to price in a possibility of disorderly default in Greek sovereign debt.

Euro zone and banking sources told Reuters Germany wants to delay the deadline for a second Greek aid package to September, reflecting disagreement within Europe on how to involve the private sector in a deal without triggering a default.

Political turmoil within Greece is also intensifying fears. Parliamentary resignations threw the Greek Prime Minister's plan to reshuffle his cabinet and seek support for an austerity package into disarray.

A Spanish auction suggested problems might spread. Weak demand prompted investors to push the country's 10-year yields to an 11-year high. The cost of insuring sovereign debt in Greece, Ireland and Portugal against default hit record highs.

Besides worrying about a potential Greek debt restructuring, and the repercussions for European banks that hold the country's bonds, markets also fear that global economic growth momentum is slowing just as the Federal Reserve prepares to end its $600 billion bond buying program.

All this is prompting investors to unwind their risky assets going into the thin trading of the summer months.

There's political turmoil in Greece, and the government doesn't look too stable, said Lutz Karpowitz, currency strategist at Commerzbank in Frankfurt.

The risk is increasing that Greece may not get a bailout, and this is putting pressure on the euro.

The MSCI world equity index <.MIWD00000PUS> fell 1.1 percent to hit its lowest level since mid-March. The index has wiped out all the gains made this year to fall one percent since January.

The euro fell as low as $1.4071, a one-month low. It hit a lifetime low against the Swiss franc.

The FTSEurofirst 300 index <.FTEU3> fell 0.8 percent. U.S. stock futures pointed to a weaker open on Wall Street later.

Emerging stocks <.MSCIEF> were down 1.7 percent. Chinese stocks <.SSEC> hit an 8-1/2 month low as speculation grew about a potential interest rate hike after the yield on three-month bills unexpectedly rose at an auction.

The Chinese economy has undoubtedly slowed as a result of the monetary tightening ... but .. the trough in leading indicators suggests that the pace of slowdown is moderating, said Gerard Lane, equity strategist at Shore Capital.

As a result the underperformance seen in the first quarter of those stocks with a high degree of emerging market exposure should come to an end.

CONTAGION FEARS

Bund futures rose 39 ticks. Spanish 10-year yields rose as high as 5.75 percent, up over 18 bps on the day.

We've already seen a decent concession going into the (Spanish) auction so they had to concede quite a substantial amount to investors in order to get them to buy, said WestLB rate strategist Michael Leister.

As we saw in Greece and the other countries, you can fund yourself and get liquidity but the crucial issue at some point in time becomes the price. Here it seems Spain is clearly heading in the wrong direction.

The cost of insuring Greek sovereign debt jumped to 1,900 bps, the highest in the world.

The dollar <.DXY> rose a quarter percent against a basket of major currencies.

U.S. crude oil rose 0.4 percent to $95.21 a barrel.

(Additional reporting by Naomi Tajitsu and Kirsten Donovan; Editing by Ruth Pitchford)

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