* MSCI world equity index down 0.6 pct at 335.16
* Euro zone bank stress tests fail to calm worries
* Gold at record above $1,600/oz as investors seek safety
* U.S. stock futures point to losses on Wall Street
By Jessica Mortimer
LONDON, July 18 (Reuters) - The euro, stocks, and bonds of highly indebted European countries fell on Monday as investors fled riskier assets on escalating U.S. and euro zone debt worries, while safe-haven gold rose to a fresh high.
European banking shares took a beating after euro zone stress tests results failed to address the potential for a Greek sovereign debt default, which many economists are expecting.
Investors were also nervous about the lack of progress in
U.S. debt negotiations to avert a government default as a
deadline to raise the $14.3 trillion debt ceiling loomed. U.S.
S&P 500 stock futures
"There are two (major) regions in the world -- the United States and the euro area -- where we have debt problems climaxing in the coming days," said Kornelius Purps, fixed income strategist at UniCredit.
"There are still so many unsolved issues and therefore investors are definitely on the defensive side."
Attention was centred on a meeting of euro zone leaders later this week that may prove critical in determining the role of private sector creditors in further aid to Greece.
The MSCI world equity index fell 0.6 percent. European stocks lost more than 1 percent on the day, led by banking stocks , after posting the worst weekly performance in nearly four months last week.
The euro was down 0.8 percent versus the dollar at $1.4030. Emerging stocks fell 0.8 percent.
Eight smaller euro zone banks failed the stress tests, in line with expectations, while a further 16 were close to failing. All of them may need to shore up their balance sheets.
With fears growing that the debt crisis could spread to Italy or Spain, the euro zone's third and fourth largest economies, Spanish 10-year government bond yields rose to 6.36 percent, their highest since the introduction of the euro. The Italian equivalent also rose above 6 percent.
The German Bund future
With five days remaining before President Barack Obama's Friday deadline for a deal to raise the U.S. debt ceiling, Republicans and Democrats have yet to agree on a plan to cut the nation's deficit and raise its debt limit in time to avoid an unprecedented default.
U.S. corporate earnings will also be watched, with International Business Machines Corp and Charles Schwab Corp due to report later Monday.
GOLD ABOVE $1,600
Spot gold rose to an all-time peak above $1,600 an ounce after rising more than 3 percent for a second straight week last week, a feat it has not achieved since February 2009.
The safe-haven Swiss franc hit record highs against the dollar and euro.
"The stress test result was met with a lukewarm response with focus again switching back to Europe. When that happens gold is often allowed to perform despite the dollar strengthening at the same time," said Saxo Bank analyst Ole Hansen.
Concern over the failure of European policymakers to quickly resolve the region's debt crisis drove the cost of insuring Greek, Spanish and Italian debt against default to record highs.
Merkel called on Sunday for private investors to make a major contribution to bailing out Greece. Officials proposed a range of schemes for the European Financial Stability Facility to finance a buy-back or a swap in which private owners of Greek government bonds would accept cuts in the face value of their holdings.
But clarity about a second bailout of Greece may bring only temporary relief for the euro if investors decide the single currency area's problems have become systemic and require a region-wide solution.
Risk aversion pushed oil prices lower, with U.S. crude