* S&P 500 futures, European stocks drop 1.5%
* Dollar index eyes weekly gain
* Asian equities eye weekly drop
* Chinese short-term rates surge amid tight liquidity
By Carolyn Cohn
LONDON, Jan 29 (Reuters) - European stocks and U.S. stock futures fell on Friday and the safe-haven dollar looked set for a weekly gain as a Wall Street battle between hedge funds and retail investors and a row in Europe over COVID-19 vaccine supply cooled risk appetite.
Wall Street has been gripped by a coordinated assault by small traders organising over online forums, such as Reddit, to force hedge funds to reverse short positions - or bets that stocks would fall - on companies such as GameStop (NYSE:GME) GME.N and AMC Entertainment AMC.N . attack comes after central bank and government stimulus have propelled stock markets to record highs, encouraging buying by retail investors.
"The GameStop saga will end, leaving a sour taste in policymakers' mouths," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
"The story could be a trigger for action that could bring the government and the central bank to revise their ultra-loose policies that throw liquidity in the middle, and not towards a reasonable target."
Brokers cut off borrowing facilities and restricted trading in some of the hottest names overnight, driving down their prices. boss of popular online broker Robinhood said the curbs were deployed to protect the brokerage and its customers but that some restrictions will be lifted on Friday. 500 futures ESc1 fell 1.5% and Nasdaq 100 futures NQc1 fell 1.8%, more than reversing gains made on Thursday as the earnings season got off to a strong start. .N
Britain's FTSE 100 index .FTSE fell 1.7% and was set to record its worst week since October. European stocks .STOXX fell 1.5%.
VACCINE ROW
COVID-19 vaccine production delays have snowballed into a spat between Britain, the European Union and drugmakers over how best to direct limited supplies. fight to secure vaccines intensified on Thursday when the EU warned drug companies that it would use all legal means or even block exports unless they agreed to deliver shots as promised. former vaccine chief Kate Bingham said on Friday she did not believe the EU would block exports. variants of the novel coronavirus have also prolonged lockdowns and delayed expectations of an economic rebound.
"The pandemic continues to cast a dark shadow and the timing of any recovery, economic or social, remains unclear,” said Richard Hunter, head of markets at Interactive Investor.
Click here http://tmsnrt.rs/2EmTD6j for an interactive chart on the vaccine race
The U.S. dollar rose to a seven-week high against the yen JPY=EBS , and gained 0.2% against an index of currencies =USD , bringing its weekly rise to 0.6%. The euro EUR= fell 0.12% and the pound GBP= dropped 0.3%.
German 10-year government bond yields DE10YT=RR ticked up one basis point.
World stocks .MIWD00000PUS fell 0.5% towards three-week lows set in the previous session.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 1.1% and is on course for a weekly loss of 4.4%. Japan's Nikkei .N225 fell 1.9%, recording its first weekly loss of the year.
Meanwhile, the People's Bank of China (PBOC) injected 100 billion yuan into the financial system on Friday, following a week of reducing liquidity, which had sparked concerns the central bank was in fact tightening monetary policy.
Still, the extra money did little to loosen short-term money markets, where rates rose for a fifth straight day and benchmark overnight repo rates CN1DRP=CFXS surged to their highest in nearly six years. prices were steady, sticking to ranges seen in the last three weeks, with stalled vaccine rollouts capping upward momentum.
Brent crude futures LCOc1 were up 0.1% at $55.58 a barrel and U.S. crude futures CLc1 slipped 0.27% to $52.20 a barrel. O/R
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Global assets
http://tmsnrt.rs/2jvdmXl Global currencies vs. dollar
http://tmsnrt.rs/2egbfVh Emerging markets
http://tmsnrt.rs/2ihRugV MSCI All Country World Index Market Cap
http://tmsnrt.rs/2EmTD6j Hedge funds scrambling to exit shorts, cut losses
https://tmsnrt.rs/3prlMgN
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>