GLOBAL MARKETS-Italian banks hit Europe stocks; dollar rises

                                
 * World stocks slip as Europe falls, emerging rise
                                
 * Wall Street little changed as uncertainty rules
                                
 * Italian banks in focus after a capital increase
 (Updates with U.S. markets' open)
                                
 By Barani Krishnan
                                
 NEW YORK, March 29 (Reuters) - European banking shares
helped lead world stocks lower on Tuesday after an Italian bank
announced a capital increase, while the dollar rose on comments
by a Federal Reserve official and the yen hit post-intervention
lows.
                                
 U.S. stocks were slightly lower as many investors, cautious
about continuing global crises, bided their time before the
quarter's end.
                                
 Oil prices fell, buffeted by continuing uncertainties over
the political chaos in the Arab world and Japan's nuclear
crisis.
                                
 World stocks as measured by MSCI <.MIWD00000PUS> were down
0.3 percent, mainly as a result of weakness in Europe. Emerging
market stocks <.MSCIEF> gained around 0.3 percent.
                                
 The surprise announcement by Italy's UBI Banca's <UBI.MI>
of a 1 billion euro ($1.4 billion) capital hike dragged down
Italian banks on speculation that other lenders could be
heading down the same road. UBI shares fell more than 10
percent. Investors also remained cautious ahead of the results
of stress tests on Irish banks, due on Thursday.
                                
 The FTSEurofirst 300 <.FTEU3> index of top European shares
was down 0.3 percent.
                                
 "We are still very cautious on the banking sector as a
whole," said Felicity Smith, fund manager at Bedlam Asset
Management. "The big problem is that they need to hold more
capital and that means in future, even if the economy grows,
the returns they generate would be lower."
                                
 Volume has begun to fall on European bourses in line with
2011 lows on Wall Street.
                                
 The Dow Jones industrial average <.DJI> was down 12.83
points, or 0.11 percent, at 12,185.05. The Standard & Poor's
500 Index <.SPX> was down 3.74 points, or 0.29 percent, at
1,306.45. The Nasdaq Composite Index <.IXIC> was down 5.25
points, or 0.19 percent, at 2,725.43.
                                
 "The quarter is ending with a lot of uncertainties out
there, resulting in messy intraday moves at the same time that
nothing is really happening," said Michael Shaoul, chairman of
the New York-based Marketfield Asset Management, which oversees
$973 million.
                                
 "There's nothing obvious about what investors need to do in
this environment, and that's why you're seeing such low
volume," he said. "No one has any reason to recommit capital."
                                
 EURO/DOLLAR
                                
 The dollar rose against the euro on Tuesday after the
president of the St. Louis Federal Reserve Bank, James Bullard,
said the Fed's $600 billion asset purchase program could be
trimmed by some $100 billion. [ID:nPRC003447] .
                                
 The euro <EUR=> hit a session low of $1.4060 on EBS trading
platform after falling through reported bids at $1.4080. It
last traded at $1.4064. Traders said reported sovereign bids at
$1.4050 could limit losses in the single currency, however.
                                
 Portugal's debt remained under pressure, with yields on its
10-year bonds near record levels above 8 percent, complicating
the country's attempts to avoid a European Union bailout.
                                
 The dollar extended gains against the euro after data
showed U.S. single family home prices fell for a seventh
straight month in January, offering fresh evidence that the
housing market recession in the United States was not over yet.
[ID:nDZE7DS003].
                                
 Meanwhile, the dollar and euro both reached their highest
levels against the yen since since March 18, when the Bank of
Japan and other major central banks intervened to stop runaway
yen gains.
                                
 The dollar rose to high of 82.42 yen <JPY=EBS> on trading
platform EBS. The euro rose to 115.86 <EURJPY=R> .It was on
course to test 116.03, above which would mark a 10-month high.
                                
 In commodity markets, Brent crude for May delivery <LCOc1>
was 39 cents lower at $114.41, after earlier falling more than
a dollar. U.S. light crude <CLc1> dropped a dollar before
paring losses to $103.62, down 36 cents.
                                
 Analysts said Japan's lack of progress in containing the
nuclear crisis was likely to delay the world's third-largest
oil user's return to full industrial strength, but the downside
for oil prices could be limited by unrest in the Middle East.
                                
 "We have two factors that are countervailing," said Harry
Tchilinguirian, analyst at BNP Paribas.
                                
 "There is a risk premium in the Middle East built in on
risk of further contagion. On the other hand we have the fact
Japan is a major component of the global supply chain, so the
potential for a price correction in the second quarter
remains."
                                
 U.S. gold fell further on Tuesday, as the prospect of
interest rate increases undermined its appeal as an inflation
hedge and copper slipped as demand from top consumer China
wanes.
 (Additional reporting by Atul Prakash, Jessica Mortimer and
Richard Leong; Editing by Leslie Adler)