By Jeremy Gaunt, European Investment Correspondent
LONDON (Reuters) - Deep-rooted jitters about the U.S. debt rating cut sent world stocks towards 11-month low on Monday, overshadowing relief that the European Central Bank was buying bonds of euro zone strugglers Italy and Spain.
Having seen some $2.5 trillion wiped off its global share values last week, MSCI's all-country world stock index was down a further one percent.
Wall Street looked set to add to the rout with S&P 500 futures down around 2.5 percent.
European share measured by the FTSEurofirst 300 index were down 2 percent after earlier registering gains on the ECB action, intended to take the heat out of the spreading euro zone debt crisis.
Yields on five-year Italian and Spanish bonds fell around a full percentage point, spreads against German debt narrowed and the cost of insuring them against default dropped.
But safe-haven buying sent gold soaring to a new record above $1,700 an ounce and the dollar weakened against a basket of major currencies.
Investors were seemingly unimpressed by weekend talks between industrialised countries aimed at safeguarding the smooth functioning of financial markets following agency S&P's cut in its U.S. rating late on Friday to AA-plus from AAA.
"It won't be long now before other ratings agencies follow suit, considering the state of the U.S.' finances. One thing is for certain, and that's that volatility will continue to remain high, making trading conditions difficult," said Angus Campbell, head of sales at Capital Spreads.
Moody's repeated a warning on Monday it could downgrade the United States before 2013 if the fiscal or economic outlook weakened significantly, but said it saw the potential for a new deal in Washington to cut the budget deficit before then.
The ECB's bond moves followed criticism that the bank had not addressed pressure on Spain and Italy when it bought Portuguese and Irish debt last week.
Traders said Monday's buying was focused on the 5-year sector of the curve, where Italian yields and Spanish equivalent dropped to around 4.6 percent.
"They're doing 20 to 25 million (euro) clips and they're spreading it around the market," said a trader. "We expect them to do billions today."
The euro rose against a dollar that fell across the board after Friday's downgrade, but the single currency remained close to a record low against the safe-haven Swiss franc.
Some analysts expected the euro to struggle ahead as the ECB bond purchases, while adding temporary liquidity to stressed debt markets, would do little to improve the fiscal problems in the region.
"Even if the ECB buys Italian bonds, private investors will just sell and offload their Italian risk ... The ECB will have to buy those bonds constantly just to keep yields stable," said Richard Falkenhall, currency strategist at SEB in Stockholm.
(Additional reporting by Naomi Tajitsu, William James, Kirsten Donovan and Dominic Lau; editing by Patrick Graham, John Stonestreet)