* World stocks down on credit worries
* Wall Street set for poor start
* Europe down 1 percent, Japan down 2.39 percent
* Euro off one month low versus dollar
By Jeremy Gaunt, European Investment Correspondent
LONDON, April 21 (Reuters) - World stocks sold off on Tuesday and Wall Street looked set to open lower after a more than one-month long rally lost some of its immediate fiz due to renewed worries about the state of the banking industry.
Shares fell despite growing signs of confidence among German investors and solid earnings from Tesco, one of the world's largest retailers. Global stocks, as measured by MSCI, were down 0.7 percent, adding to a more than 3 percent loss on Monday.
European equities seesawed but, with Wall Street's opening looming, settled lower. The FTSEurofirst index was down 1 percent, particularly as Bank of New York Mellon reported its first quarter profits had fallen by half.
Concern about banks partly drove sentiment. On Monday Bank of America greatly increased its reserves for non-performing assets, raising uncertainties about future writedowns at a time when investors are already worried about the outcomes of stress tests on the U.S. banking industry.
The European banking sector leading the market down. Monday and Tuesday's losses raised concern among some people that the sharp rally in global stocks since early March was about to end.
"There are still questions about banks' earnings and provisions," said Bernard McAlinden, strategist at NCB Stockbrokers. "The market is likely to give back some more of its gains. It's as positive as you can be to say that we've seen the lows."
Before this week, world stocks had risen for six weeks in a row, gaining close to 30 percent. Upside surprises have continued. The ZEW German analyst and investor sentiment index moved into positive territory for the first time since July 2007.
British supermarket giant Tesco, the world's third largest retailer, showed its resilience to the economic downturn, posting a 10 percent rise in underlying annual profit to 3.1 billion pounds ($4.6 billion) Earlier, Japan's Nikkei closed down 2.39 percent.
EURO RECOVERS
The euro rose after hitting one-month lows against the dollar and yen as investors took profits, but gains were limited as investors remained wary of more corporate earnings results and the health of banks.
The euro was up 0.1 percent against the dollar at $1.2936, but was not far from a one-month low of $1.2888 hit on EBS on Monday. It was up 0.4 percent at 126.96 yen.
Two-year euro zone government bond yields were 4 basis points lower at 1.408 percent and 10-year yields were down 2 basis points at 3.124 percent.
"The bank earnings aren't as good as some of the headline figures might suggest," said a trader.
(To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting; for the MacroScope Blog click on http://blogs.reuters.com/macroscope; for Hedge Hub click on http://blogs.reuters.com/hedgehub) (Editing by David Stamp)