GLOBAL MARKETS-World economy saps equities; dollar rises

* Stocks soften further on weaker U.S. GDP data

* U.S. consumer sentiment rises

* G20 meeting in focus, dollar rises (Updates to U.S. markets; changes byline, dateline, previous LONDON)

By Al Yoon and Jeremy Gaunt

NEW YORK/LONDON, June 25 (Reuters) - Worries about the fragility of the global economic recovery drained strength from financial markets on Friday, knocking world stocks lower for the fourth straight session ahead of a weekend summit of Group of Eight and Group of 20 rich and developing nations.

The dollar gained and the euro slipped amid concerns of fiscal strains in Europe and a report that showed U.S. first-quarter growth slower than first estimated. Consumer sentiment in the United States rose, however, providing limited support for Wall Street shares.

The U.S. data capped a week in which investors have been pulling back a bit from riskier assets as evidence grew that economic growth, particularly in the United States, may fall short of 2010 forecasts.

"Overall we have a modest recovery going on," said Paul Ballew, chief economist at U.S. insurer Nationwide in Columbus, Ohio. "The conversation of a double-dip recession is a bit aggressive. You are getting growth in fits and starts, rather than an outright contraction."

On Wall Street, financial shares gained as uncertainty ebbed following an historic agreement to overhaul financial regulations.

U.S. lawmakers hammered out new Wall Street regulations in the early hours on Friday, though the measure must still win approval from both chambers of Congress before U.S. President Barack Obama can sign it into law.

G8 leaders meeting on Friday in Canada -- turning into the G20 on Saturday -- are set to grapple with fears that the spending cuts and tax rises being promulgated by European governments to cut debt will hurt the recovery. Meanwhile, Washington is warning against cutting too far and too fast.

MSCI's all-country world index <.MIWD00000PUS> declined 0.3 percent, heading for a 3 percent weekly loss. Its emerging market counterpart <.MSCIEF> dipped 0.6 percent.

In late morning trading in New York, the Dow Jones industrial average <.DJI> dropped 55.09 points, or 0.54 percent, to 10,097.71. The Standard & Poor's 500 Index <.SPX> fell 3.84 points, or 0.36 percent, to 1,069.85. The Nasdaq Composite Index <.IXIC> slipped 7.92 points, or 0.36 percent, to 2,209.50.

European shares turned negative after initially bucking the trend. The FTSEurofirst 300 <.FTEU3> fell 0.7 percent adding to three previous days of losses.

"No one is really wanting to take any big positions ahead of the G20," said Justin Urquhart Stewart, director at Seven Investment Management.

Earlier, Japan's Nikkei average <.N225> fell 1.9 percent.

DOLLAR FIRMER

The dollar rose against the euro and fell against the yen on Friday as investors sought safety amid ongoing concerns about fiscal strains in the euro zone and after the earlier report of soft U.S. economic growth.

Funding concerns in the euro zone also prompted caution as banks need to repay some 442 billion euros in one-year loans to the European Central Bank next week.

The dollar rose against a basket of major trading-partner currencies, with the U.S. Dollar Index <.DXY> up 0.05 percent at 85.78. The euro fell 0.28 percent to $1.2299.

Against the Japanese yen, the dollar slipped 0.26 percent to 89.31 yen.

U.S. Treasury debt prices rose after the disappointing report on U.S. economic growth. Benchmark 10-year Treasury notes rose 8/32 in price, while yields declined to 3.11 percent from 3.14 percent late Thursday.

Core euro zone government bonds struggled to make further headway after three consecutive sessions of gains drove futures to two-week highs. Losses were limited by stock weakness.

In commodities markets, U.S. light sweet crude oil rose 66 cents, or 0.86 percent, to $77.17 per barrel, and spot gold prices rose $9.50, or 0.76 percent, to $1,253.50 an ounce.