World stocks fell for the first time in two weeks on Tuesday as investors took some profits on a cooler assessment of China's weekend decision to give its currency more flexibility.

A Fitch ratings debt downgrade of French bank BNP Paribas  hit financial stocks, while Britain's efforts to cap public borrowing in an austere budget drove the value of its debt higher.

Wall Street also looked set for losses.   

MSCI's all-country world index fell 0.8 percent, looking set for its first loss since June 7. In the period in between, the benchmark has gained more than 7 percent.

Investors have tentatively embraced riskier assets over the past fortnight as their worst fears about a euro zone sovereign debt collapse have eased.   

The FTSEurofirst 300 was down 1.3 percent after rallying for nine sessions in a row. Banks were among the top losers because of the Fitch move.

"Now, everybody thinks that BNP is one of the most solid banks, so the heat is more on (Societe Generale) and Credit Agricole, and the latter gave a grim update on its exposure to Greece today," said IG analyst Philippe De Vandiere.
    
Investors were also taking a more considered view of the impact of China's plan for more currency flexibility and grew sceptical about how much Beijing would actually allow the yuan to rise. Stocks outside the United States had risen sharply on the news    

"People gave much more weight to the currency move than it deserved," said Koen De Leus, economist at KBC Securities.

Earlier, Japan's Nikkei closed down 1.2 percent, a day after bouncing to a one-month high.

Britain's tough budget sent sterling to day lows while the September gilt futures contract extended gains. The pound fell around 30 ticks against the dollar to the day's low of $1.4692.   

Britain's FTSE 100 also extended losses to fall 1.7 percent. - Reuters