* Euro zone crisis fears intensify flight to safety
* German 2-yr bond yield hits record low, close to zero
* U.S. stocks end down after Facebook messy debut
* Brent crude at lowest level in 2012
By Caroline Valetkevitch
NEW YORK, May 18 (Reuters) - World stocks erased the year's gains o n F riday as investors fled risky investments for safe-haven assets on concerns about the euro zone's deepening debt woes, while U.S. stocks lost ground after the debut of Facebook's failed to ignite optimism.
Brent crude closed at its lowest in 2012 as the euro zone crisis raised fears of a global slowdown that could dent oil demand, while German borrowing costs hit record lows.
World stocks, as measured by the MSCI index, dropped 1.1 percent and gave up all of their gains for the year to date fueled by the European Central Bank's injection of more than 1 trillion euros. It was a sixth day of losses for the index, which is now down 0.4 percent for the year.
Riskier assets were all heading for big weekly losses.
Investors were unnerved by a ratings downgrade of 16 Spanish banks by Moody's Investors Service, which deepened worries about the euro zone contagion. But market speculation that regulators could reinstate a ban on short selling of financial stocks sparked a rally in banking shares, with Spain's Banco Santander up 3 percent. U.S.-listed shares of Banco Santander rose 3.6 percent to end at $5.76.
Spain's banks, saddled with bad loans after a property boom collapsed, may need a bailout that would strain Madrid's already stretched finances and possibly require an international bailout regardless of any contagion threat from Greece.
"Sentiments are still pretty negative," said Francis Rodilosso, portfolio manager with Market Vectors in New York. "People are definitely seeing the glass half-empty."
Ongoing political and financial turmoil in Greece has kept investors worried about its ability to remain in the euro zone.
A G8 meeting of leaders of major industrial economies this weekend is expected to tackle the crisis in Europe and look for ways to promote growth.
FACEBOOK'S LACKLUSTER DEBUT
On Wall Street, U.S. stocks fell after a sloppy debut by Facebook spoiled hopes that a spectacular open for the most-anticipated stock sale in years would brighten investors' mood. The benchmark S&P 500 posted a weekly loss of 4.3 percent.
Facebook's debut was hit with glitches, including a delay in initial trading. The stock closed at $38.23, barely above its $38 offering price.
For the day, the Dow Jones industrial average ended down 73.11 points, or 0.59 percent, at 12,369.38. The Standard & Poor's 500 Index was down 9.64 points, or 0.74 percent, at 1,295.22. The Nasdaq Composite Index was down 34.90 points, or 1.24 percent, at 2,778.79.
The FTSEurofirst 300 of leading European shares slid 1.1 percent, falling for a fifth day.
In the foreign exchange market, the euro rose from a four-month low against the dollar. It tumbled to $1.2640, not far from its trough of 2012, before recovering to trade slightly higher.
Europe's woes kept pressure on oil prices.
ICE July Brent crude settled at $107.14 a barrel, down 35 cents, the lowest close for front-month Brent since the Dec. 20, 2011 settlement. Brent is down 3.7 percent for the week.
NYMEX crude for June delivery settled at $91.48 a barrel, falling $1.08, or 1.17 percent. For the week, it slid 4.84 percent.
"The problems in Europe, highlighted by the political instability in Greece, remain as the primary factor for today's slide in oil prices," said Kyle Cooper, managing partner at IAF Advisors in Houston.
GERMAN BOND YIELDS HIT RECORD LOW, GOLD GAINS
Benchmark 10-year German bond yields hit a record low of 1.396 percent and two-year yields also fell to their lowest-ever level at just 0.028 percent.
Safe-haven gold prices rose more than 1 percent, with spot gold at $1,588.96 an ounce.
In the U.S. Treasury market, however, prices slipped as investors took profits a day after benchmark yields flirted with their lowest level in at least 60 years. Benchmark 10-year Treasury notes last traded down 5/32 at 100-12/32 in price to yield 1.71 percent, up 2 basis points from Thursday.