GLOBAL MARKETS-World stocks lose rally, euro weakens, oil slides

* MSCI world equity index drops

* European, U.S. stocks step back from 17-month highs

* Greece worries weigh; euro hits 2-week low vs dollar

* Investor sentiment darkens, correction seen (Updates to early afternoon)

By Al Yoon

NEW YORK, March 19 (Reuters) - Global shares slipped from 17-month highs on Friday as pockets of weakness in earnings and a rising dollar dampened long-running rallies, while concerns over Greece's debt burden kept pressure on the euro.

Oil suffered its steepest drop in six weeks as the dollar firmed against the euro and other currencies. The lower price of crude oil weighed on energy shares in the United States and Europe.

Gold also fell on the stronger dollar.

The euro was on track for its worst weekly performance against the dollar since late January as traders waited to see if Greece can secure aid from its fellow euro zone members at a European Union summit next week. Greece has said that it might have to turn to the International Monetary Fund for help.

"The tensions surrounding Greece are escalating. This whole IMF situation has become a game of brinkmanship and the whole uncertainty is undermining the euro," said Michael Woolfolk, senior currency strategist, at BNY Mellon in New York.

In equities markets, an early boost to banks came as British lender Lloyds Banking Group said it would return to profit this year after two years of heavy losses, helped by lower bad debts and tight cost controls. Shares of Lloyds jumped 8.2 percent in London, but European stocks closed lower on a late-session sell-off in resource-related sectors as commodities prices fell. For details see [ID:nLDE62I07H].

The MSCI world equity index <.MIWD00000PUS> lost its footing and fell 0.4 percent.

In U.S. equities trading, the Dow Jones industrial average <.DJI> fell 56.83 points, or 0.53 percent, to 10,722.34. The Standard & Poor's 500 Index <.SPX> slipped 7.25 points, or 0.62 percent, to 1,158.58 and the Nasdaq Composite Index <.IXIC> declined 21.41 points, or 0.9 percent, to 2,369.87.

Analysts warned of volatility due to "quadruple witching" -- the expiration of U.S. stock index futures, stock index options, stock options and stock futures -- later on Friday.

"Even with a one-year rally of almost historical proportions, investors remain in a very skeptical market," said Keith Springer, president of Capital Financial Advisory Services in Sacramento, California.

The number of individual investors who were bullish declined nearly 10 percentage points to 35.4 percent in the latest week, according to a survey by the American Association of Individual Investors. Bearish calls rose 4.6 percentage points to 29.9 percent.

Friday's decline was mostly a technical one after an 11 percent rise in the S&P 500 since Feb. 5, Springer said.

Barclays Capital, the investment banking arm of Barclays Plc, on Thursday predicted equity markets would continue their rally this year, but only after signs of stalling earnings cause a second-quarter correction. The firm increased its 2010 target for the S&P 500 Index to 1,210 from 1,120.

Palm Inc's stock plunged 25 percent to $4.26 a day after it warned that quarterly revenue would fall far below expectations, as tepid demand for its smartphones left wireless carriers with piles of inventory. [ID:nN18254531]

"When there are fewer and fewer customers ... the low end of the totem pole gets squeezed out," said Capital Financial's Springer. "That's what happens in a downturn."

The higher dollar and lower oil prices sapped energy stocks, with the S&P Energy Index <.GSPE> down 1.4 percent.

In Europe, the FTSEurofirst 300 <.FTEU3> index of top European shares closed 0.4 percent lower at 1,065.48.

The index earlier touched a 17-month high, boosted by bank stocks UBS , Barclays and Credit Agricole , which ended up 1.5 percent to 1.7 percent.

But oil and metal prices took a beating while the dollar rose. Dollar-denominated oil and metals become more expensive for holders of other currencies when the dollar rises.

In energy and commodities prices, U.S. light sweet crude oil fell $1.95, or 2.37 percent, to $80.25 per barrel, also pressured after an industry report suggested OPEC exports were rising.

Spot gold prices fell $21.60, or 1.92 percent, to $1,103.80 an ounce.

GREECE WORRIES

Concerns over Greece and doubts over whether euro zone states will agree to any support package still hurt sentiment, keeping the euro weak and hampering peripheral debt prices as traders waited for next week's European Union summit.

The euro zone currency fell 0.58 percent against the dollar to $1.3527, near its lowest level in more than two weeks, while increased risk aversion helped flows into the U.S. currency. The dollar <.DXY> rose 0.63 percent against a basket of major currencies to 80.734.

"I think the market doubts whether next week's summit will produce anything more specific in terms of a plan for Greece," said Chris Turner, head of FX strategy at ING.

Markets will be sensitive to further rhetoric on Greece's debt situation after Athens raised the stakes on Thursday in its quest for EU help, saying it could not achieve promised deficit cuts if borrowing costs remained so high. [ID:nLDE62I0AW]

Against the Japanese yen, the dollar gained 0.11 percent to 90.37 yen.

Weakness in equities aided sovereign debt, with U.S. Treasury debt prices edging higher in the face of $118 billion in debt next week. Benchmark 10-year note yields declined 0.02 percentage point to 3.66 percent. (Additional reporting by David Brett and Naomi Tajitsu in London and Rodrigo Campos in New York; Editing by Leslie Adler)