By Jeremy Gaunt

Emerging market stocks, sovereign debt and currencies all came under intense pressure as investors unwound funding positions amid worries about the deteriorating world economy.

That overshadowed signs that efforts by authorities across the world to bolster the financial system were beginning to bear fruit.

Hungary ratcheted up interest rates by three full points to defend its forint currency.

Belarus's central bank said it had requested credit from the International Monetary Fund and Ukrainian Prime Minister Yulia Tymoshenko said she expected her country would receive "substantial" financial aid from the IMF next week.

The IMF is also ready to help Pakistan, which needs funds to avoid a balance of payments crisis, and Iceland, driven close to bankruptcy as frozen credit markets caused its banks to fail.

"It's not that the fundamentals for emerging markets that have changed. Capital is now moving back from the emerging world to the developed world," said Neil Dougall, chief emerging markets economist at Dresdner Kleinwort.

OPTIMISM?

The frenzy masked some otherwise optimistic noises from various officials about the financial crisis, which has prompted billions of dollars in rescue and liquidity packages from governments around the world.

U.S. Treasury Undersecretary David McCormick, speaking in Hong Kong, said the U.S. economy was in for a challenging few quarters but could start to recover late next year.

"The name of the game is to bring back confidence to the financial market," he said.

Mervyn King, Governor of the Bank of England and a major player in Group of Seven nations' discussions on the crisis, said that for the financial system the worst may have passed.

"We are far from the end of the road back to stability," he said late on Tuesday. "But the plan to recapitalize our banking system, both here and abroad, will I believe come to be seen as the moment in the banking crisis of the past year when we turned the corner."

His comments were underlined by U.S. dollar short-term funding costs falling further in London and Asia, a sign banks are beginning to regain trust in each other.

Emerging powerhouse Russia, whose markets have been battered during the crisis, also signaled improvements in bank lending.

"The interbank has started working normally. The rates are high but coming down. Banks have started crediting sectors again. But we still need two or three weeks for the situation to start improving," the Financial Times quoted First Deputy Prime Minister Igor Shuvalov as saying.

RECESSION LOOMS

The overarching fear, overshadowing the progress made in fighting financial collapse, was about the deteriorating global economic climate.

Minutes from the Bank of England's last meeting, at which it joined a coordinated round of rate cuts, said the UK economy had deteriorated substantially and King, in his Tuesday comments, said it was probably entering its first recession in 16 years.

Such worries swept financial markets.

Wall Street looked set for a poor start -- Dow Jones industrial average futures were down 242 points.

European shares were down more than 4.4 percent and Japan's Nikkei average ended down 6.8 percent.

Battered U.S. bank Wachovia Corp, set to be taken over by Wells Fargo & Co, posted a $23.9 billion third-quarter loss, a record for any U.S. lender in the global credit crisis.

In emerging markets, MSCI's sector index was at its lowest since June 2005 and sovereign debt spreads widened beyond 700 basis points over Treasury yields for the first time since early 2003.

Currencies other than the forint were also battered, with the Turkish lira falling to the lowest in more than two years and South Africa's rand at its lowest in more than 6 years against the dollar.

"Now we are going to have to deal with the problems of a business cycle downturn, which in all likelihood will be a fairly intense one," said Sanjay Mathur, economist at the Royal Bank of Scotland in Singapore.

A slew of other U.S. company results on Wednesday will give a snapshot of conditions across an array of industries and sectors in the world's largest economy.

Boeing, tobacco giant Philip Morris, oil major ConocoPhillips and McDonald's are to report third quarter performance.

(Editing by Mike Peacock)