* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* World stocks index adds to worst day in six months
* Trump woes mount after report on aides' Russia contacts
* Dollar steadies, but loses some of Asian momentum
* ECB talks about paring back stimulus if inflation recovers
By Marc Jones
LONDON, May 18 Swirling uncertainty over U.S.
President Donald Trump's political future saw world stocks
extend their steepest fall in over six months on Thursday,
though there were signs of stabilisation elsewhere as the dollar
and gold steadied.
Reports that Trump had tried to intervene in an
investigation into alleged Russian interference in last year's
U.S. election and that his aides had numerous undisclosed
contacts with Russian officials kept market tensions
Asian stocks fell sharply after Wall Street suffered its
worst day in over eight months overnight and Europe's main
bourses dropped between 0.8 and 1.3
percent as the selling momentum built again.
Rabobank strategist Michael Every said the key question was
whether markets would "calm down, or panic more."
"The obvious point we've made before repeatedly is that
Trump now has much less political capital to spend in the
Capitol, and that makes Trumpflation far less likely. Yet things
seem to be rapidly moving beyond that point, opening up other
scenarios," he said.
While stocks flashed warning lights again, the dollar seemed
to be going for the 'calm down' option.
It pulled out of a dive that had taken it to its lowest
level in six months against other top currencies including the
euro and the yen.
A mini-recovery in Asia as Japan posted its best economic
performance in a year looked to have run out of steam however.
It eased back again in European trade to leave it at $1.1136 per
euro and buying 110.97 Japanese yen..
There was more support for the euro too as one of the
European Central Bank's most influential policymakers, Executive
Board member Benoit Coeure, said it should not delay paring back
its stimulus once it was convinced inflation has recovered.
"Too much gradualism in monetary policy bears the risk of
larger market adjustments when the decision is eventually
taken," Coeure told Reuters in an interview in which he also
said the bank's bond-buying programme was "not set in stone".
The political jitters coming out of the United States
remained the dominant factor for traders, however.
Germany's benchmark 10-year Bund yield fell to a two-week
low and U.S. Treasury yields were flat having dropped as far as
2.2120 percent the previous day, which had been a one-month low
The allegations surrounding Trump have not only thrown doubt
over the future of the pro-growth policies he promised, but they
have raised the possibility he could end up leaving the White
Trump says he is being given one of the toughest rides of
any president in U.S. history.
But a small number of his fellow Republicans called on
Wednesday for an independent probe of possible collusion between
his 2016 campaign team and Russia, and one even mentioned
Wall Street futures pointed to another, albeit more modest,
fall of around 0.2 percent when it reopens later.
Trump was not the only leader under scrutiny either.
Trouble mounted for Brazilian President Michel Temer, who
was recorded discussing payments to silence testimony by a
potential witness in the country's biggest-ever graft probe,
sources told media including Reuters.
An exchange-traded fund of Brazilian equities fell
more about 8 percent in Tokyo after the Brazilian real
had dropped more than 1.2 percent in local markets.
In commodity markets, which have also been highly volatile
in recent weeks but due mainly to supply and demand issues,
there were steadier signals.
Brent oil futures dipped back to $52.05 a barrel after
hitting a two-week high overnight on the back of an ongoing
effort by OPEC to cut production.
Safe-haven gold hovered near a two-week high prompted by the
weaker dollar and the risk aversion gripping the broader
Spot gold was at $1,260 an ounce having hit
$1,263.02, its highest since May 1 the previous session.
"I would caution that the gold rally has been driven by
political news and not necessarily fundamentals. Should the
political storm die in Washington, the rally will lose steam,"
said Jeffrey Halley, senior market analyst at OANDA.
(Reporting by Marc Jones; editing by John Stonestreet)