GLOBAL MARKETS-World stocks, euro slide on Greece default fears

* US stocks briefly turn positive after data, fall again

* Euro drops to 8-1/2 month low versus dollar

* Bank shares down in Europe on fears of Greek default (Adds U.S. Treasuries prices rising, updates prices)

By Walter Brandimarte

NEW YORK, Oct 3 (Reuters) - World stocks fell on Monday and the euro slid to an 8-1/2 month low versus the dollar after Athens admitted it will miss deficit targets this year, making a Greek debt default look more likely.

Bank shares were battered in Europe as investors feared the impact of a Greek default on holders of the country's bonds, such as Franco Belgian financial group Dexia , whose stock slumped nearly 10 percent.

Demand for safe-havens such as U.S. government bonds and the Japanese yen was on the rise. Treasuries prices were also supported by the Federal Reserve's first bond purchase for Operation Twist, its latest bond program aimed at helping the U.S. economy.

The 2012 draft budget approved by Greece's cabinet on Sunday predicted a deficit of 8.5 percent of gross domestic product for 2011, well over the 7.6 percent target.

"There continues to be very little clarity with respect to a solution (in Europe). More time is needed, and there's no real driving influence to put money back in the market," said Joseph Cangemi, managing director at BNY ConvergEx Group in New York.

European policymakers appeared no nearer to agreeing on a definitive solution to the crisis. Officials meeting on Monday were discussing ways to leverage the bloc's rescue fund and pressure Greece to implement agreed structural reforms. For details, see [ID:nL5E7L20LD].

"Ultimately, Greece would need to see its debt written down by more and with that you need probably some kind of shoring up of the banking sector," said Alec Letchfield, chief investment officer at HSBC Asset Management.

U.S. stocks briefly turned positive after an index of U.S. manufacturing activity came in better than expected, but Greek concerns eventually kept Wall Street in the red. On Friday, stocks closed their worst quarter since 2008.

The Dow Jones industrial average <.DJI> lost 28.00 points, or 0.26 percent, at 10,885.38. The Standard & Poor's 500 Index <.SPX> was down 4.89 points, or 0.43 percent, at 1,126.53. The Nasdaq Composite Index <.IXIC> was down 14.09 points, or 0.58 percent, at 2,401.31.

The MSCI All-Country World index <.MIWD00000PUS> was 1.5 percent lower, near a 14-month low set in September. The FTSEurofirst 300 <.FTEU3> of top European shares fell 1.3 percent.

The October-December period is, traditionally, the best quarter for equities. Reuters data shows that since 1971, world stocks have on average risen 3.7 percent in the fourth quarter.

Dexia fell nearly 10 percent after credit agency Moody's announced a rating review for possible downgrade on concerns about liquidity. French daily Les Echos said on Friday that Belgian and French finance ministers would meet on Monday to discuss ways of shoring up the firm's balance sheet.

U.S. crude oil fell 1.2 percent to $78.19 a barrel.

The euro fell as low as $1.32372 on trading platform EBS, a fresh 8-1/2-month low. It was last down 0.9 percent at $1.3261.

Against the safe-haven yen, the euro was down 0.9 percent at 102.194 yen on EBS, not far from its decade low of 101.946 struck in September.

"Euro zone bank issues remain a big issue and we expect the euro's downside to continue," said George Saravelos, G10 FX strategist at Deutsche Bank.

The benchmark 10-year U.S. Treasury note was up 20/32 in price, its yield down to 1.8465 percent. (Additional reporting by Ryan Vlastelica in New York, Natsuko Waki in London; Editing by Dan Grebler)