GLOBAL MARKETS-Bank troubles hits stocks; dollar rises

* MSCI world equity index down 1.2 pct at 279.80

* European shares hit four-week lows, banking worries weigh

* Dollar hits one-month high ahead of Fed meeting

By Natsuko Waki

LONDON, Nov 3 (Reuters) - World stocks hit a four-week low on Tuesday and the dollar climbed as poor results from UBS and a shake-up of UK banks Lloyds and Royal Bank of Scotland prompted investors to cut back on risk.

UBS shares fell nearly 8 percent after the bank reported larger-than-expected asset outflows for the third quarter. [nL2713325]

Lloyds fell 1 percent after launching a record 13.5 billion pound ($22 billion) rights issue. Along with RBS, it agreed to sell off businesses as part of a complex deal to limit reliance on government support. [nL3540088]

Adding to the sector's problems, the European Commission said results of stress tests on euro zone banks showed losses could amount to 400 billion euros ($590.9 billion) in 2009-2010. [nL3566693]

Furthermore, CIT Group INC , a U.S. lender to hundreds and thousands of small and medium-sized businesses, filed for bankruptcy on Sunday, underscoring the fragility of parts of the financial sector and fanned concerns that a 7-month global equity rally may be reversing.

"There is a general sense of risk aversion," said Geoffrey Yu, currency strategist at UBS.

"Year-end position liquidation could also prove disruptive to capital markets as investors crystallise this year's gains."

World stocks as measured by MSCI <.MIWD00000PUS> fell 1.2 percent. The index rallied by 75 percent between early March and late Oct on growing optimism over the global economy, but fell 4 percent last week.

The FTSEurofirst 300 <.FTEU3> index of top European shares fell nearly 2 percent to a four-week low, losing ground for the sixth time in nine sessions.

Riskier emerging market shares <.MSCIEF> fell 1.8 percent.

"UBS just posted ugly results that bode ill for European bank results and CIT just filed for bankruptcy. This raises the question: isn't it too early to pay back government money?" said David Thebault, head of quantitative sales trading at Global Equities in Paris.

European bank shares <.SX7P> shed 3.8 percent.

C.BANKS, G20 MEETINGS

The low-yielding dollar rose 0.6 percent against a basket of major currencies <.DXY> and also advanced 0.9 percent to a four-week high of $1.4627 per euro .

The Federal Reserve starts a two-day meeting on interest rates on Tuesday, the European Central Bank and Bank of England make rate decisions on Thursday, U.S. employment data is due on Friday and G20 finance ministers meet in St Andrews, Scotland, this weekend.

The Fed is not expected to depart from a policy of maintaining low rates for an extended period of time but it could discuss how to prepare markets for an eventual policy shift.

The ECB and BoE are expected to keep rates on hold but the UK central bank may decide to pump yet more money into the economy.

The Australian dollar fell more than 1 percent after the country's central bank raised rates on Tuesday for a second consecutive month, to 3.5 percent.

Investors are becoming more tentative about markets going into the final two months of the year.

Oil fell 1.2 percent to $77.18 a barrel but gold was boosted by news the International Monetary Fund had sold 200 tonnes of gold to the Reserve Bank of India for $6.8 billion, half of a long-planned sale that threatened to slow the precious metal's rally. [ID:nN02468120]

Euro zone government bonds benefited from the fall in European stocks. The December Bund future rose 37 ticks to 122.28. (Additional reporting by Tamawa Desai, editing by Mike Peacock)