GLOBAL MARKETS-World stocks, oil slide on Greek default fears

* US stocks open lower but recover on economic data

* World stocks, oil fall on Greek default fears

* Yen, safe-haven government bonds higher

By Walter Brandimarte and Natsuko Waki

NEW YORK/LONDON, Oct 3 (Reuters) - World stocks, oil and the euro slid on Monday 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 shares slumped nearly 10 percent.

Concerns about the European banking sector also sent the euro to an 8-1/2 month low against the dollar, although it recovered ground later after the U.S. data release.

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 short of the 7.6 percent target.

"This news is disappointing but not surprising," said Oliver Pursche, president at Gary Goldberg Financial Services in Suffern, New York.

"While I think they will get additional help if needed, there remains a lot of uncertainty over how much more money could be provided as well as the framework for a possible deal."

Policymakers, however, looked no nearer to agreeing on a definitive solution to the euro zone debt crisis. Officials meeting on Monday are 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 out better than expected, but Greek concerns eventually kept them in the red. They had closed on Friday their worst quarter since 2008.

The Dow Jones industrial average <.DJI> was down 38.48 points, or 0.35 percent, at 10,874.90, while the Standard & Poor's 500 Index <.SPX> fell 4.23 points, or 0.37 percent, to 1,127.19. The Nasdaq Composite Index <.IXIC> lost 9.39 points, or 0.39 percent, to 2,406.01.

The MSCI world equity index <.MIWD00000PUS> was 1.5 percent lower, however, near a 14-month low set in September. The FTSEurofirst 300 <.FTEU3> of top European shares fell 1.5 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 Belgian and French finance ministers will 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 to fresh 8-1/2 month lows versus the dollar below $1.33, extending losses, and hitting its lowest since at least mid -2004 on EBS.

Against the safe-haven yen, the euro was down 0.9 percent at 102.194 yen on EBS trading platform, 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.

(Additional reporting by Ryan Vlastelica; Editing by Theodore d'Afflisio)