* Dollar rises broadly as equities fall sharply
* Dollar index up 0.7 percent at 89.192
* European shares fall 1.9 percent, led by banks
* Sterling badly hit, touches 6-wk low vs dollar
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By Tamawa Desai
LONDON, March 9 (Reuters) - The dollar rose broadly on Monday as steep falls in bank stocks led European shares lower, prompting investors to move to the highly liquid U.S. currency.
The pan-European FTSEurofirst 300 index was down 1.9 percent by late morning trade, while the broader STOXX 600 index fell to its lowest since September 1996.
U.S. share futures were also lower, indicating a weaker open on Wall Street.
"Plunging U.S. equity index futures are driving forex price action again," said Adam Cole, global head of forex strategy at RBC Capital Markets in London.
"The dollar is stronger across the board, but with particularly marked gains against an independently weak pound."
By 1208 GMT, the dollar index rose 0.7 percent to 89.192, closing in on a three-year high hit last week.
The brunt of bank sector woes fell on sterling, which hit a 6-week low against the dollar below $1.3850. The euro rose to its highest level since late January to 90.96 pence.
Concerns about the outlook for the banking sector intensified after Lloyds Banking Group said over the weekend that the UK government would get a stake of up to 77 percent in the bank after agreeing to underwrite 260 billion pounds of risky assets.
Shares in Lloyds were down as much as 14 percent, while rival HSBC was down 11 percent on worries about its credit after announcing an $18 billion rights issue last week.
The pound was also hit as the Bank of England will begin to implement this week its buying of 75 billion sterling worth of assets to boost the money supply.
Other currencies perceived to be higher risk also fell sharply against the U.S. currency, with the Australian dollar down 0.8 percent at $0.6354 and the New Zealand dollar falling 1.0 percent to $0.4970.
Data on Monday showed the euro zone Sentix consumer sentiment indicator deteriorated in March to its lowest level since the survey began in early 2003, dropping to -42.7 from -36.1 in February, which was also more than a forecast for -38.0 .
The euro fell 0.3 percent to $1.2593.
Meanwhile, the yen remained under pressure after data showed Japan's current account in January fell into deficit for the first time in 13 years.
A deepening downturn in Japan has taken the shine off the yen as a safe-haven currency in recent weeks, taking the dollar back within sight of the key 100 yen mark.
"The yen is likely to remain weak, particularly as we head into the fiscal year-end, and since the Japanese authorities have indicated that they want the currency to weaken," BNP Paribas currency strategist Ian Stannard said.
The dollar rose 0.6 percent against the yen to 98.98 yen, while the euro also gained 0.2 percent to 124.65 . (Additional reporting by Jessica Mortimer; Editing by Ruth Pitchford)