* European shares dip ahead of stress test results
* Euro recovers against dollar, Swiss francs
* Gold eases after nine sessions winning streak
By Dominic Lau
LONDON, July 15 (Reuters) - Investors squared up on Friday before the release of European bank stress tests, with European banking shares flat after a sell-off that has knocked 2.5 percent off the region's stock markets this week.
Worries the euro zone debt crisis was spreading to Italy have driven Italian bond yields up half a percent since last Friday and slashed valuations of financial sector firms across the region.
The euro has borne up relatively well against the dollar due to parallel concerns over the United States' own debt troubles and hints further monetary could yet be on the cards there, potentially flooding global markets with dollars.
But investors remain deeply concerned by Europe's inability to find a broader solution to a debt crisis that could eventually lead to a series of defaults and have wide-ranging implications for public finances and banks worldwide.
European Banking Authority test results, due to be published at 1600 GMT after markets close, are expected to show that as many as 15 lenders need more capital to withstand a prolonged recession, with criticism growing that the tests do not encompass the impact of a Greek default.
"I'd be neutral going into (the stress test results) but until there's a solution to the bigger picture problems that people see as tangible and could work, Bunds are the only place to be," Alan McQuaid, chief economist at Bloxham Stockbrokers, said.
European banks were flat after falling as much as 1.2 percent earlier.
The FTSEurofirst 300 index of leading European shares was down 0.2 percent, while the MSCI All-Country World Index eased 0.1 percent. In Asia, Japan's Nikkei average closed 0.4 percent higher.
Yields on 10-year German Bunds were down 1.5 basis points at 2.728 percent, while Greece's 10-year government bond yields rose 20 basis points to 17.38 percent.
DEBT CRISIS
Deutsche Bank analysts said in a report that political disunity in tackling the debt crisis could prompt a slide in equity valuations of 35 percent on world stocks, "if the situation deteriorates into a full-blown financial crisis on the scale of the fallout from the collapse of Lehman Brothers."
That is an extreme scenario, but critics say the banking health check fails to reflect expectations that Greece will default on its debt in some form, which would pile up losses for German and French banks holding its bonds.
The cost of insuring European bank debt against debt default rose, with the iTraxx Senior Financials index up by 4.9 basis points to 183.50 basis points.
The euro was up 0.2 percent at $1.4170 and up 0.4 percent at 1.1581 Swiss francs .
"We think EUR/CHF may be the cleanest vehicle to express a bearish view on eurozone systemic tension," brokerage Nomura said in a note.
"The challenge posed by the turmoil in the Italian bond market is sustainable and in our view, the euro is set to underperform as long as bond market tension in Italy and Spain persists."
An impasse over raising the United States' debt ceiling may continue to weigh on the dollar, with ratings agency Standard & Poor's following rival Moody's in warning it could cut the country's prized AAA credit rating.
The dollar was steady at 79.12 yen and down 0.2 percent against a basket of currencies .
U.S. stock index futures
Gold eased 0.4 percent after hitting a record high of $1,594.16 an ounce in the previous sessions due to investors using it as a refuge from the tensions in other markets.
Brent crude