GLOBAL MARKETS - Bank troubles hit world stocks, dollar up

By Jennifer Ablan

NEW YORK (Reuters) - Investors scrambled for safety on Tuesday, driving world stocks lower and propelling bids for government bonds and the dollar on poor results from UBS and a shake-up of UK banks Lloyds and Royal Bank of Scotland.

UBS shares were down nearly 6 percent following news the Swiss bank suffered a larger-than-expected asset outflow in the third quarter. Lloyds shares were under pressure after it launched a record 13.5 billion pound ($22 billion) rights issue. Along with RBS, it agreed to sell off businesses as part of a deal to limit reliance on government support.

Adding to the sector's problems, the European Commission said results of stress tests on euro zone banks showed losses could amount to 400 billion euros ($590.9 billion) in 2009-2010.

"Equity market setbacks have a propensity to re-ignite risk aversion investment activity," said Tom Sowanick, co-president and chief investment officer of Omnivest Group.

World stocks as measured by MSCI fell 0.44 percent. The index rallied by 75 percent between early March and late October on growing optimism over the global economy, but fell 4 percent last week.

The FTSEurofirst 300 index of top European shares was down 1.16 percent, losing ground for the sixth time in nine sessions. Riskier emerging market shares fell 0.83 percent.

Parts of the U.S. equities market were down.

The Dow Jones industrial average was off 17.53 points, or 0.18 percent, at 9,771.91, but the Standard & Poor's 500 Index was up 2.53 points, or 0.24 percent, at 1,045.41. The Nasdaq Composite Index was up 8.12 points, or 0.40 percent, at 2,057.32.