* World stocks slip as Europe falls, emerging rise
* Italian banks in focus after a capital increase
* Wall Street, oil prices turn positive (Updates with U.S. stocks and oil turning positive)
By Barani Krishnan
NEW YORK, March 29 (Reuters) - European banking shares helped lead world stocks lower on Tuesday after an Italian bank announced a capital increase, while the dollar rose after a top Federal Reserve official said the U.S. central bank's asset purchase plan should be curtailed.
U.S. stocks rose on strength in large-cap technology stocks, but investors remained cautious due to the continuing global crises and the approach of the end of the first quarter.
Uncertainty over Libya drove up the price of oil, as government troops under Muammar Gaddafi halted a rebel advance aimed at restoring oil exports from the OPEC member.
World stocks as measured by MSCI <.MIWD00000PUS> were down 0.1 percent, after slipping about 0.3 percent earlier, mainly as a result of weakness in Europe. Emerging market stocks <.MSCIEF> gained around 0.4 percent.
The surprise announcement by Italy's UBI Banca's
The FTSEurofirst 300 <.FTEU3> index of top European shares was down 0.3 percent.
"We are still very cautious on the banking sector as a whole," said Felicity Smith, fund manager at Bedlam Asset Management. "The big problem is that they need to hold more capital and that means in future, even if the economy grows, the returns they generate would be lower."
Volume has begun to fall on European bourses in line with 2011 lows on Wall Street.
The Dow Jones industrial average <.DJI> was up 36.37 points, or 0.30 percent, at 12,234.25. The Standard & Poor's 500 Index <.SPX> was up 1.48 points, or 0.11 percent, at 1,311.67. The Nasdaq Composite Index <.IXIC> was up 11.35 points, or 0.42 percent, at 2,742.03.
"The quarter is ending with a lot of uncertainties out there, resulting in messy intraday moves at the same time that nothing is really happening," said Michael Shaoul, chairman of the New York-based Marketfield Asset Management, which oversees $973 million.
"There's nothing obvious about what investors need to do in this environment, and that's why you're seeing such low volume," he said. "No one has any reason to recommit capital."
The Nasdaq was helped by strength in large-cap tech shares.
Amazon.com Inc
EURO/DOLLAR
The dollar rose against the euro after the president of the St. Louis Federal Reserve Bank, James Bullard, told an audience in Prague that the U.S. economy was strong enough to curtail the Fed's $600 billion asset purchase program by some $100 billion. [ID:nLDE72S0RJ].
The euro hit a session low of $1.4060 on the EBS trading
platform after falling through reported bids at $1.4080. It
last traded at $1.4085
Portugal's debt remained under pressure, with yields on its 10-year bonds near record levels above 8 percent, complicating the country's attempts to avoid a European Union bailout.
The dollar extended gains against the euro after data showed U.S. single family home prices fell for a seventh straight month in January, offering fresh evidence that the housing market recession in the United States was not over yet. [ID:nDZE7DS003].
Meanwhile, the dollar and euro both reached their highest levels against the yen since since March 18, when the Bank of Japan and other major central banks intervened to stop runaway yen gains.
The dollar rose to high of 82.42 yen
In commodity markets, U.S. crude's benchmark May contract
Analysts said Japan's lack of progress in containing the nuclear crisis was likely to delay the world's third-largest oil user's return to full industrial strength, but the downside for oil prices could be limited by unrest in the Middle East.
"We have two factors that are countervailing," said Harry Tchilinguirian, analyst at BNP Paribas.
"There is a risk premium in the Middle East built in on risk of further contagion. On the other hand we have the fact Japan is a major component of the global supply chain, so the potential for a price correction in the second quarter remains."
U.S. gold remained under pressure after Monday's losses as the prospect of interest rate increases undermined its appeal as an inflation hedge. Copper also slipped as demand from top consumer China waned. [GOL/] [MET/L] (Additional reporting by Atul Prakash, Jessica Mortimer and Richard Leong; Editing by Leslie Adler)