* World shares add to last week's losses
* Wall Street set for gains after sharp losses on Friday.
* European shares weak, Japan down 2.31 percent
* Dollar slips after gains
By Jeremy Gaunt, European Investment Correspondent
LONDON, Nov 2 (Reuters) - World stocks added to the previous
week's losses on Monday, hugging one-month lows as investors
pulled back from a more than seven month rally and prepared for
the eventual withdrawal of stimulative monetary policy.
Wall Street, however, looked set for a positive start after
Friday's heavy losses on a day that also saw the VIX volatility
index surge.
The dollar slipped against major currencies after enjoying
its biggest weekly gain since early June.
Investors were bracing for a week of meetings at major
central banks, including the U.S. Federal Reserve and European
Central Bank, the release of minutes from the past meetings of
others and a G20 finance ministers' meeting. []
At issue in all cases is the future of the liquidity that
has been behind much of this year's financial market recovery,
in the form of low interest rates and quantitative easing
designed to pump money into the financial system.
"It's central bank week," said one bond trader.
News that CIT Group INC <CIT.N>, a U.S. lender to hundreds
of thousands of small and medium-sized businesses, finally filed
for bankruptcy on Sunday, also underscored the continuing
fragility of parts of the financial sector [].
World stocks as measured by MSCI <.MIWD00000PUS> were down
0.2 percent, adding to last week's more than 4 percent loss, the
largest since early March just before the rally began. Emerging
market stocks <.MSCIEF> lost 0.6 percent.
Wall Street's favorite pulse of investor sentiment, the
Chicago Board Options Exchange Volatility Index <.VIX> or VIX,
rocketed 23.95 percent higher to 30.69 on Friday, the highest it
has been since July.
In addition, cross-sectional volatility -- or the volatility
between stocks as opposed to just the index -- has also been
rising;.
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For graph on cross-sectional volatility, click on::
https://im.collab.reuters.net/file/190vtgzujg/Vol.GIF
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Some of this may be because of the time of year. Credit
Suisse estimates that 22 percent of mutual funds end their
fiscal years at the end of October, and those managers may have
been selling last week to capture profits.
European shares hit a four-week low on Monday, extending the
previous session's sharp declines, but later recovered a bit.
The FTSEurofirst 300 <> index of top European shares down
0.1 percent at. It fell 2.1 percent on Friday.
"Everybody is anxious and knows that the market went a
little bit too fast," said Koen De Leus, economist at KBC
Securities.
Earlier, Japan's Nikkei stock average <> fell 2.3
percent to hit a three-week closing low.
DOLLAR DITHERS
The dollar was lower against a basket of major currencies
<.DXY>, but only after gaining more than 1 percent last week,
its best performance since the week ending June 7.
The currency has lost 6 percent this year as investors have
deserted it for higher-yielding competitors and returned to
non-U.S. stock markets after last year's flight.
The euro was up 0.4 percent at $1.4777 <EUR=> and the dollar
lost 0.2 percent against the yen <JPY=>.
Euro zone bonds were mixed, with demand stronger for
shorter-dated debt.
(Additional reporting by Atul Prakash and Kirsten Donovan;
Editing by Ruth Pitchford and Andy bruce)
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