Shares fall on oil's five-year low; dollar slides

NEW YORK (Reuters) - Oil prices slumped to five-year lows on Wednesday and U.S. and European equity markets fell as investors withdrew from riskier positions in favor of safe-havens like the Japanese yen.

Brent crude oil futures fell to $64.04 a barrel, the lowest since September 2009, before recovering a bit as producers forecast lower demand for oil next year. U.S. and European markets were dragged lower by losses in energy, as the S&P energy index was last off nearly 3 percent as the worst performing sector.

Oil prices have been under pressure from the dollar's strength and OPEC's decision against an output cut, with Brent down more than 40 percent from its June high. Brent crude was last down $2.75, or 4 percent, at $64.09 a barrel. U.S. crude was last down $2.80, or 4 percent, at $61.02 per barrel.

"Crude oil is under punishment today once again on the back of the OPEC news. OPEC has cut its demand forecast for next year and this has unbalanced the demand and supply equation further and traders are not liking the sound of this at all," said Naeem Aslam, chief market analyst at AvaTrade.

The drag on European energy shares sent the region's broad FTSEurofirst 300 index into negative territory for a third straight session.

Chinese shares rebounded after data showed inflation in the world's second-biggest economy hit a five-year low last month, kindling hopes for more monetary policy easing. The losses in U.S. and European shares overshadowed the gains, however.

In Europe, Greek shares were among the top losers on mounting concerns over the country's politics, down 1 percent, adding to Tuesday's roughly 13 percent plunge.

The worries over Greece and the weakness in Chinese economic data sent the U.S. dollar lower for a third straight session. The greenback was on track to post its worst three-day loss against the safe-haven yen in over a year, though analysts still believe the dollar will continue to improve in coming months. The dollar fell to 118.56 yen, off 1 percent.

U.S. government bond yields, which move inversely to prices, were little changed ahead of the U.S. Treasury's auction of $21 billion in reopened 10-year notes, while German government debt fell to record lows after concerns over Greece fueled safety bids.

MSCI's all-country world equity index, which tracks shares in 45 nations, was last down 0.78 percent at 416.94. Europe's broad FTSEurofirst 300 index was last down 0.36 percent at 1,358.28.

The Dow Jones industrial average was down 149.82 points, or 0.84 percent, at 17,651.38. The Standard & Poor's 500 Index was down 15.74 points, or 0.76 percent, at 2,044.08. The Nasdaq Composite Index was down 25.66 points, or 0.54 percent, at 4,740.81.

Benchmark 10-year U.S. Treasury notes were last up 5/32 in price to yield 2.2 percent.

Gold hovered near seven-week highs on the pullback in equity markets and the dollar. Spot gold prices were last down 0.17 percent at $1,228.30 an ounce.

(Reporting by Sam Forgione; Additional reporting by Jamie McGeever and Sudip Kar-Gupta in London and Chuck Mikolajczak and Gertrude Chavez-Dreyfuss in New York; Editing by Dan Grebler)