* Euro falls; dollar index hits one-month high
* Global stocks mostly down, denting risk appetite
* UK bank shake-up briefly hits sterling; Aussie down
* Fed rate announcement awaited (Updates prices, adds price action in FX options)
By Gertrude Chavez-Dreyfuss
NEW YORK, Nov 3 (Reuters) - The U.S. dollar climbed to a one-month high against the euro on Tuesday as concerns about the global banking sector reignited safe-haven demand for the greenback.
European shares fell and Wall Street stocks were flat after trading lower for most of the session following disappointing results from UBS and a shake-up of UK banks Lloyds and Royal Bank of Scotland. That prompted investors to cut back on on higher-yielding currencies and buy back the dollar used to finance these trades.
"Sentiment on the financial sector in Europe was weak and that pressured the euro and the pound earlier and contributed to the overall strength in the dollar," said Vassili Serebriakov, senior currency strategist, at Wells Fargo in New York.
In late afternoon trading, the euro fell 0.4 percent to $1.4706 after hitting a four-week low of $1.4627, according to Reuters data.
News about the European Commission's estimates of bank losses renewed anxiety over the sector's health. The EU Commission quoted results of stress tests in the banking sector, published in early October, which said losses could amount to 400 billion euros ($585.2 billion) in 2009-10.
The euro also declined 0.4 percent against the yen to 132.87, while the dollar was little changed at 90.32 yen.
The ICE Futures U.S. dollar index, a measure of the greenback against a basket of six currencies, was up 0.1 percent at 76.360, after earlier climbing as high as 76.817, its highest since early October.
Tuesday's price action boosted implied volatility, a measure of a currency's movement in either direction and a barometer of risk sentiment. The higher the vol, the greater the fear in the market.
Implied vols rose across the board and in all tenors. One-month euro/dollar vols, for instance surged to a high of 12.50 and last traded at 12.1.
The one-year contract on euro/dollar implied vols traded as high as 14.3 before profit-taking set in. One-year vols last changed hands at 14.19.
FURTHER DOLLAR SUPPORT
Some traders said profit-taking on risk assets, already seen in equities, could materialize ahead of funds' book-closings as the year-end approaches. That may offer an additional boost to the dollar.
"People are starting to slowly remove risk from the table," said Brian Kim, currency strategist with UBS in Stamford, Connecticut. "We could see a little support for the dollar heading into year-end."
Traders also remained cautious ahead of a slew of central bank meetings this week. The U.S. Federal Reserve starts a two-day policy-setting meeting on Tuesday and the European Central Bank and the Bank of England hold policy meetings later in the week.
The U.S. October non-farm payrolls report is also due on Friday.
The Fed, which will announce its decision on Wednesday, is expected to keep its benchmark interest rate unchanged near zero. Investors also expect no major changes to the wording in its statement, which should reiterate that the Fed will keep rates low for an "extended period."
Shaun Osborne, chief currency strategist at TD Securities in Toronto, said if the Fed makes no change in its wording on interest rates and signals stimulus will stay for a long time, it would weigh on the dollar and boost higher-yielding assets.
The Australian dollar fell 0.2 percent against the U.S. dollar to US$0.9016 after the Reserve Bank of Australia raised its cash rate for the second straight month, as expected, but left markets guessing if it would raise rates again as soon as December.
Sterling earlier in the session hit a one-week low against the dollar before recovering after the UK Treasury announced a shake-up of British banks, which raised concerns about the financial sector. The pound was slightly up at $1.6407.