(Updates link to Brazil story)
* 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
Europe's bourses dropped between 0.8
and 1.3 percent as the selling pressure built again and Wall
Street was expected to open down as much as 0.5 percent, having
suffered its biggest thumping in over eight months on Wednesday.
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.
Though stocks flashed warning lights again, the dollar
seemed to be going for the 'calm down' option.
It pulled out of a tailspin that had taken it to its lowest
level in six months against other top currencies including the
euro and the yen, though it remained wobbly.
A mini-recovery in Asia as Japan posted its best economic
performance in a year ran out of steam in Europe, and it was
limping sideways at $1.1136 per euro and buying 110.97
Japanese yen by the time U.S. traders got to their desks.
Switzerland's safe-haven franc hit its highest since
November's U.S. election and Britain's Brexit-bruised
pound broke through the $1.30 barrier for the first time
since late September after reassuring retail sales figures.
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 get on with paring
back its stimulus once it is 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.
Treasury yields seemed to be heading for a six-month low as
they dropped back below 2.2 percent and
Germany's and Europe's benchmark government bond, the Bund, saw
its yields dip to a fresh a two-week trough.
The allegations surrounding Trump have not only thrown doubt
over the future of the pro-growth policies he promised, but have
raised the possibility he could end up leaving the White House
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 more, albeit modest, falls
for the S&P 500, Dow and Nasdaq markets
when they reopen later. Wednesday's dump, while substantial, had
come after both the S&P and Nasdaq hit record highs on Tuesday.
"The more Trump gets bogged down in the impeachment debate
and the issues surrounding that, it reduces the likelihood that
you get anything meaningful in terms of fiscal stimulus --
that's the key factor here," said Chris Scicluna, head of
economic research at Daiwa Capital Markets in London.
Trump was not the only world leader under scrutiny.
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.
Shares in Brazilian state-controlled oil company Petrobras
<SA PBR.N> and mining giant Vale <SA VALE.K> plunged 16 and 9.5
percent in pre-market trading respectively after the Brazilian
real had dropped more than 1.2 percent in local markets.
Among commodities, which have also been highly volatile in
recent weeks but due mainly to supply and demand issues, there
were steadier signals.
Brent oil futures slide back 60 cents to $51.60 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, in the previous session. It
has been its biggest rally since Britain voted to quit the
European Union last June.
"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.
(Additional reporting by Dhara Ranasinghe in London; Editing by