|PIC1|A global sell-off knocked world shares to a five-month low on Thursday as surging oil fanned concerns about inflation and slowing growth, ahead of an expected euro zone interest rate hike and a key U.S. jobs report.

The gloom was all-pervasive, with Tokyo stocks setting their longest losing streak in more than half a century while the dollar hit a two-month low against the euro.

The European Central Bank is set to become the first G7 central bank to raise interest rates since the credit crisis erupted in August. The decision is due at 1145 GMT (7:45 a.m. EDT). At 1230 GMT (8:30 a.m. EDT), ECB President Jean-Claude Trichet gives a news conference and at the same time U.S. non-farm payrolls data are due.

Tightening comes as the global economy struggles with the chilling effects of an almost one-year-old financial turmoil.

"This has been a summer of thunder storms that have been building up for some time," said Justin Urquhart Stewart, investment director at Seven Investment Management.

"Only now are people beginning to realize quite how dark this particular storm is looking, but it's been a long time coming."

The FTSEurofirst 300 index was down 1.1 percent, having hit a level not seen since July 2005. MSCI main world equity index fell 0.6 percent to its lowest since January 23.

On Wall Street, the Dow has sunk into a bear market - a fall of 20 percent from peaks.

In the currency market, the euro benefited from the expected ECB rate hike while the dollar fell as low as $1.5897 per euro.

"The risks for the dollar are to the downside both in terms of how hawkish the ECB is going to sound - we don't think they can afford to sound any less hawkish than they have been," said Phyllis Papadavid, currency strategist at Societe Generale.

"And payrolls are not going to be the cause for any comfort either."

A weaker dollar - which policymakers increasingly worry is inflationary - pushed crude oil to fresh record highs above $145 a barrel.

A senior Japanese government official said leaders from Group of Eight rich nations will discuss concerns that a weak U.S. dollar is a contributing factor to oil prices when they gather next week in Japan.

Emerging sovereign spreads widened 1 basis point while emerging stocks fell 1.4 percent.

The September Bund future fell 15 ticks. Safe-haven government bonds, which usually benefit from risk-aversion, fell because investors anticipated higher yields. A quarter-point interest rate hike and hawkish comments from Sweden's central bank also depressed European government bonds.

Gold rose to $944.55 an ounce, its highest in almost 2-1/2 months.