* MSCI world equity index falls 1.74 percent to 224.42
* U.S. stock futures fall ahead of U.S. open, Europe down
* Oil falls below $34 to lowest in almost five years
By Carolyn Cohn
LONDON, Dec 19 (Reuters) - Energy stocks led a fall in world equities on Friday as oil hit its lowest in nearly five years on worries over global demand, but the dollar clawed back some losses at the end of the last full trading week of 2008.
Oil fell below $34 to its weakest since Feb 2004 as the global slowdown overshadowed record supply cuts by OPEC.
"The oil price is a real-time indicator for the global economy," said Gerhard Schwarz, head of global equity strategy at Unicredit in Munich.
"It is a zero sum game: a lower oil price shifts purchasing power from oil-producing countries to consumers in oil-importing countries."
U.S. stock futures fell, indicating a weaker open on Wall Street, with the auto industry the latest focus for concern over the U.S. economy.
The MSCI world equity index fell 1.69 percent to 224.54. The FTSEurofirst 300 index of leading European shares fell 1.22 percent.
Friday is a quadruple witching day, on which stock index futures, stock index options, stock options and individual stock futures all expire.
President George W. Bush will make a statement at 1400 GMT on aid for U.S. automakers.
Sources familiar with the talks told Reuters on Thursday that General Motors Corp and Chrysler LLC were approaching a deal to secure emergency loans as part of a U.S. government aid package.
Ten-year Japanese government bond yields briefly fell to 3-1/2 year lows of 1.21 percent after the Bank of Japan cut its key policy rate by 20 basis points to 0.10 percent, the lowest rate since 2006.
Japan joined the global trend for lower interest rates after the United States took rates close to zero earlier this week, pushing the U.S. currency sharply lower.
However, the dollar recovered 2 percent against the euro to $1.3952 as traders squared positions on the last Friday before Christmas. The U.S. currency steadied at 89.45 yen after hitting 13-year lows earlier this week.
Sterling also recovered some ground from recent record lows against the euro hit on expectations of further rate cuts.
Money market strains have eased recently, but U.S. and European central banks announced new money market operations on Friday and said they will continue to work together to address pressures.
Euro zone government bond yields rose slightly and March Bund futures fell 11 ticks. Benchmark U.S. Treasury yields also rose.
"(Quantitative easing) essentially ... is what central banks have been doing in recent months -- printing money to buy bonds. The next phase of it might be that they explicitly target buying government bonds in order to reduce the level of long-term interest rates," said Chris Iggo, chief investment officer for fixed income at AXA Investment Managers. (Additional reporting by Christoph Steitz in Frankfurt, editing by Stephen Nisbet)