*World stocks stumble on US earnings, economic reports
*S&P warns on health of UK banking system
*Dollar benefits from euro zone fiscal worries
By Al Yoon
NEW YORK, Jan 28 (Reuters) - Most global shares slumped on Thursday after reports cast doubts on the U.S. economic recovery and the health of the UK banking system, while fiscal worries elsewhere in Europe dented the euro versus the dollar.
Earnings reports also helped send U.S. stocks lower.
Shares in the United States and Europe turned lower as a drop of 8,000 in initial claims for unemployment benefits suggested a sluggish jobs recovery. Another report showing a disappointing rise in orders for big-ticket durable goods also dulled the recovery outlook that has underpinned markets for months. For details, see [ID:nN28241916] and [ID:nN27129988].
"We used to think we would start creating jobs in the first half of the year, but data points like this suggest that's less likely," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut. "The longer it takes to create jobs, the more uncertain the recovery becomes."
Quarterly results from 3M Co
The Dow Jones Industrial Average <.DJI> at midday swooned 146.31 points, or 1.43 percent, to 10,089.85. The Standard & Poor's 500 Index <.SPX> fell 15.74 points, or 1.43 percent, to 1,081.76 and the Nasdaq Composite Index <.IXIC> declined 48.43 points, or 2.18 percent, to 2,172.98.
World stocks as measured by MSCI <.MIWD00000PUS> fell nearly 1 percent. The index is at its lowest since Nov. 6 and down more than 7 percent from highs set earlier this month.
European stocks also struggled, and the euro fell, as concerns about banks and the fiscal health of Greece, Portugal and other smaller euro zone countries weighed on investor confidence. European shares <.FTEU3> dropped 1.2 percent.
German unemployment beat forecasts, while European Central Bank Executive Board member Gertrude Tumpel-Gugerell said it was time fiscal and monetary policy returned to normal.
European shares shed earlier gains after bond rating company Standard & Poor's said the UK banking system was no longer classified among the most stable and low-risk.
In currencies, the dollar rose to its highest level in more than six months against the euro as Germany and France denied a newspaper article suggesting an EU bailout for Greece was being planned, while Athens said it has struck no deal for China to buy its bonds and will search mainly in Europe for funds.
The premium investors demand to hold Greek government bonds rather than benchmark German Bunds set a new euro lifetime high on Thursday. In U.S. debt, benchmark 10-year U.S. note yields rose 0.01 percentage point to 3.66 percent.
Meantime, budget proposals from the Portuguese government on Wednesday failed to reassure ratings firms [ID:nLDE60R0RX] [ID:nLDE60R0GZ]. The premium to hold Portuguese debt compared with benchmark German bonds also rose.
"Clearly that concern is not going away and if anything, it's becoming a greater concern for the market," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. "It seems that the market is willing to push euro/dollar even lower."
The euro
Losses sustained in Europe and the U.S. followed an upbeat day in Asia, where Japan's Nikkei average rose 1.6 percent, snapping a four-day losing streak following positive reports from Honda Motor <7267.T> and Sony Corp <6758.T>.
In energy and commodities prices, U.S. light sweet crude
oil
Earlier, investor optimism after U.S. President Barack Obama's State of the Union speech late on Wednesday had knocked the dollar off highs reached after the U.S. Federal Reserve kept its low interest rate policy intact.
That Obama did not aggressively attack banks soothed markets, said David Morrison, market strategist at GFT Global (Additional reporting by Tamawa Desai, Harpreet Bhal, Naomi Tajitsu, Elaine Lies, Ryan Vlastelica and Wanfeng Zhou; Editing by Kenneth Barry)