GLOBAL MARKETS-White House bank risk proposal roils markets

* White House proposals to reduce bank risk roils markets

* European share prices slip in concert with U.S. markets

* U.S. bank shares hit by proposals

* U.S. Treasuries gain at stock market expense, gold falls (Updates with U.S. markets, reaction to bank risk proposals, changes byline, dateline, previous LONDON)

By Daniel Bases

NEW YORK, Jan 21 (Reuters) - Share prices dropped sharply on Thursday after U.S. President Barack Obama proposed new limits on top American banking risk profiles, spurring U.S. Treasury purchases but undercutting gains for the U.S. dollar.

Obama said he is ready to fight the financial sector and its lobbyists for rules that would bar banks from owning, sponsoring or investing in hedge funds or private equity funds for their own profit, causing a bank share sell-off. For more see [ID:nN21115923].

Europe's stock markets, closing just as the announcement was made, fell in concert with already weak U.S. stocks after a surprise increase in U.S. weekly jobless claims reduced optimism about economic recovery from the global financial crisis. [ID:nN21210135]

"In the midst of the uncertainty of everyone trying to sort out exactly what (Obama) said, exactly how it will be implemented, and whether it has a chance of getting through Congress, the natural response is to sell now and ask questions later," said Scott Marcouiller, senior equity market strategist at Wells Fargo Advisors in St. Louis.

Banks generate a significant portion of their revenue and profits from their proprietary trading desks, which trade on behalf of the bank rather than clients.

Goldman Sachs Group , one of Wall Street's top earners, dropped 5.4 percent to $158.72 per share. The firm, along with many of the other top U.S. banks, has been roundly criticized for paying large bonuses. Goldman reported better-than-expected fourth quarter net income of $4.95 billion. [ID:nN21197777]

JPMorgan shares fell 5.9 percent to $40.84.

At 12:48 EST (1748 GMT) the Dow Jones industrial average <.DJI> fell 215.91 points, or 2.04 percent, at 10,387.24. The Standard & Poor's 500 Index <.SPX> lost 21.23 points, or 1.87 percent, at 1,116.81. The Nasdaq Composite Index <.IXIC> dropped 28.71 points, or 1.25 percent, at 2,262.54.

The pan European FTSEurofirst 300 <.FTEU3> fell 1.56 percent to a one-month closing low of 1,036.07. Mining companies Anglo American , BHP Billiton and Rio Tinto fell between 3.12 and 6.15 percent.

The global trading day didn't start out as gloomy. Tokyo's benchmark Nikkei 225 stock index <.N225> rose 1.22 percent, buttressed by gains in technology shares and a stable yen.

DOLLAR SINKS

The potential for a redrawing of how Wall Street banks operate had a ripple effect across asset classes.

The proposals caused a sell-off in the U.S. dollar. The greenback fell sharply against the yen and relinquished gains against the euro, which earlier hit a six-month low against the U.S. currency.

"The dollar is taking it on the chin after these comments, as the implication is they are negative for bank profitability. Everyone was looking for the dollar to continue rallying but the mood has definitely soured," said Shaun Osborne, senior strategist at TD Securities in Toronto. [ID:nN21216309]

The U.S. dollar index, which measures the greenback against a basket of major trading-partner currencies, fell back from near six-month highs to a loss of 0.01 percent at 78.329 <.DXY>.

The dollar was down 0.78 percent at 90.54 against the yen while the euro was off just 0.05 percent against the dollar at $1.4094, having been as low as $1.4025 on concerns about Greece's debt woes.

Concerns over Greece's debt problems drove yields on its 10-year government bonds versus German Bunds to 312 basis points, the widest since Greece joined the euro zone in 2001.

However, an unconfirmed report in a Brussels-based weekly newspaper that the European Union was mulling a loan to Athens caused investors to buy back debt and snap the yield spread tighter by 36 basis points. [ID:nLDE60K17D]

European bond prices rose and yields fell late in their session as stock markets fell. The 10-year Bund yield slipped 1.3 basis points to 3.212 percent.

Benchmark 10-year U.S. Treasuries rose 10/32 of a point in price, driving the yield down to 3.615 percent.

Spot gold prices fell $12.00, or 1.08 percent, to $1,099.30, a near 3-week low, while U.S. light sweet crude oil fell $1.38, or 1.78 percent, to $76.36 per barrel, a one-month nadir. (Additional reporting by Reuters correspondents worldwide; Editing by James Dalgleish)