* World stocks slip on credit worries
* Europe bucks trend, up 0.5 percent.
* Japan down 2.39 percent
* Euro off one month low versus dollar
By Jeremy Gaunt, European Investment Correspondent
LONDON, April 21 (Reuters) - European shares bucked the global trend on Tuesday, rising despite renewed fears about banking credit and keeping up hopes that a global equity rally would continue.
World stocks as measured by MSCI were down 0.3 percent, adding to a more than 3 percent loss on Monday. They were mainly hit by Asia, where Japanese shares lost 2.39 percent.
European equities gained, with the FTSEurofirst index up 0.5 percent.
Driving early sentiment on Tuesday was a steep loss on Wall Street overnight. Bank of America greatly increased its reserves for non-performing assets, raising uncertainties about future writedowns at a time when investors are already worried about the outcomes of stress tests on the U.S. banking industry.
This raised concern in some quarters that a sharp rally in global stocks since early March was about to end.
Before this week, world stocks rose for six weeks in a row, gaining close to 30 percent. But European shares suggested there may be some life left in the rally. They were particularly lifted by signs of resilience from the world's third largest retailer, Tesco which posted bumper profits.
"One day of a major correction does not break a trend, especially the ferocious rally of the past six weeks," Dariusz Kowalczyk, chief investment strategist with SJS Markets in Hong Kong, said in a note.
"But we do expect a more substantial return to the risk aversion trade some time in the near term, most likely in relation to the U.S. bank stress test results."
EURO RECOVERS
The euro rose after hitting one-month lows against the dollar and yen as investors took profits but gains were limited as investors remained wary of more corporate earnings results and the health of banks.
The euro was up 0.2 percent against the dollar at $1.2947, but was not far from a one-month low of $1.2888 hit on EBS on Monday. It was up 0.2 percent at 126.77 yen.
The dollar was flat at 97.94 yen, up from a three-week low of 97.66 yen hit on Monday.
Euro zone government bonds rose.
Two-year bond yields were 5 basis points lower at 1.412 percent and 10-year yields were 3 basis points lower at 3.108 percent.
"The bank earnings aren't as good as some of the headline figures might suggest," said a trader.
(To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting; for the MacroScope Blog click on http://blogs.reuters.com/macroscope; for Hedge Hub click on http://blogs.reuters.com/hedgehub) (Editing by Mike Peacock)