Oil hits five-year low, crushing risk appetite

LONDON (Reuters) - Oil prices fell to fresh five-year lows on Tuesday, prompting investors rattled by worries over global growth and renewed political uncertainty in Greece to dump shares.

The government of bailed-out euro zone member Greece brought forward a presidential vote to next week in a political gamble that could trigger parliamentary polls if Prime Minister Antonis Samaras fails to have his candidate elected.

Greek government bond yields soared.

Chinese shares were standout losers, notching up their biggest daily percentage loss in more than five years and reversing a two-week rally.

But the key action was in oil. Brent crude fell as low as $65.29 a barrel in Asian trade, its lowest since September 2009, on concern over a swelling supply glut.

Brent, which has fallen some 40 percent in the last six months, was last trading at $66.29 per barrel.

European shares opened lower, following falls in stocks in Asia and on Wall Street on Monday.

The pan-European Eurofirst 300 was down 1.3 percent, hit by energy shares and after British grocer Tesco cut full-year profit expectations by almost a third.

"European markets are trading lower and following the sell off on Wall Street, as oil prices continue to stay under pressure. Investors are worried that there is no floor in sight for the crushing oil prices." Naeem Aslam, analyst at Avatrade, said in a note.

Tokyo's Nikkei stock index close down 0.7 percent, pulling away from 7 1/2-year highs as the stronger yen prompted investors to take profits on exporters.

In the United States, the S&P 500 suffered its worst day since Oct. 22 as the falling oil price hit energy stocks.

Shanghai shares dropped more than 5 percent, dragged down by the financial and property sectors, for their biggest one-day percentage fall since August 2009.

DOLLAR PULLBACK

The dollar fell 0.9 percent to 119.62 yen , pulling away from a seven-year high of 121.86. The yen was up 1.1 percent against the commodity-linked Australian dollar , which earlier set a four-year low against the U.S. currency .

"People are cutting the higher-yielding currencies which they've been funding through being short yen and that position is being reversed somewhat, which is manifesting itself in a much lower dollar/yen," said Neil Jones, head of FX hedge fund sales at Mizuho bank in London.

The dollar had earlier gained on a Wall Street Journal report that Federal Reserve officials were considering dropping an assurance that short-term interest rates would remain near zero for "a considerable time" at its policy meeting on Dec. 16-17.

The euro strengthened 0.3 percent to $1.2354 as the greenback dropped a similar amount against a basket of currencies .

German 10-year government bond yields, the euro zone benchmark, fell 2.4 basis points to 0.70 percent, just above a record low.

The weaker dollar pushed gold above $1,200 an ounce. It was last up 0.3 percent at $1,206.10 .

(Additional reporting by Wayne Cole in Sydney, Adam Rose in Beijing, Jemima Kelly and Jamie McGeever in London; Editing by Mark Potter)