Year-end positioning, Ukraine worries hit stocks

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(Reuters)

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - World equities fell on bank worries and the dollar climbed on Friday as a bout of year-end risk aversion gripped European markets, and Wall Street looked set to follow suit.

At least part of the equity weakness came from European trader concerns about banking shares and possible exposure to Ukrainian debt.

There were no new developments but analysts said there was growing concern about the implications of a proposed restructuring last week of the Ukrainian state railway company's debt after it failed to repay a portion of it.

But concern combined with general worries about the global economy and a strong tendency among investors to want to lock in profits before year end.

In recent months, the U.S. currency and equities have moved in opposite directions, with the former getting hit every time risk appetite bolsters the latter and vice versa.

Earlier on Friday, this correlation broke down. But it proved only temporary as stock investors retreated.

The dollar has begun to benefit from profit-booking in higher-yielding currencies.

"Hedge funds are cashing out their positions to prepare for year-end redemption requests from their clients. And that move is encouraging others to take profits as well," said the head of a trading desk at a big Japanese bank.

The dollar was up 0.6 percent against a basket of major currencies . The euro slipped about the same to $1.4823 and Britain's pound was down 1 percent at $1.6492.

The dollar pushed gold lower. It was down $5 an ounce at $1,138 an ounce, well off its record high reached on Wednesday.

Gold tends to rise when the dollar falls because the metal becomes cheaper to non-dollar investors.

EUROPEAN STOCKS BOUNCE

MSCI's all-country world index was down 0.4 percent adding to a 1.6 percent fall on Thursday. It was heading for a weekly loss despite hitting a year high on Monday.

European shares turned tail and were heading for a fourth consecutive day of losses.

The FTSEurofirst 300 index of top European shares was down 0.7 percent.

Earlier, Japan's Nikkei fell 0.5 percent and logged its first four-week losing streak in over a year.

Demand for euro zone government bonds rose.

(Additional reporting by Dominic Lau and Satomis Noguchi; Editing by Ron Askew)