* World stocks, emerging markets, Japan fall
* Europe up on BP results
* Dollar weaker after previous session's gains
By Jeremy Gaunt, European Investment Correspondent
LONDON, Oct 27 (Reuters) - Emerging market and Japanese
shares fell sharply on Tuesday after an overnight sell off on
Wall Street, but the retreat failed to boost the dollar which
fell after the previous sessions' gains.
European stocks made modest gains at the open, bucking the
overall trend.
Investors are becoming jittery about both the extent of this
year's global equity rally -- stocks have risen as much as 75
percent from a March low -- and over the knowledge that
authorities will eventually withdraw stimulus measures that have
been a key factor in driving a global recovery.
The Wall Street sell off on Monday, for example, was
prompted by fears U.S. lawmakers may let a federal home buyer
tax credit expire.
The Chicago Board Options Exchange Volatility Index <.VIX>,
investors' favourite barometer of investor sentiment, shot up to
its highest level in four weeks, indicating worries about future
losses.
This sentiment swept over into Tuesday trading with MSCI's
all-country world stocks index <.MIWD00000PUS> down 0.5 percent,
its emerging market sub-index <.MSCIEF> down 1.3 percent and
Japan's Nikkei <> closing down 1.45 percent.
"If you look at where markets have risen in recent months,
possibly some sort of correction has become inevitable," said
Juliam Mayo, investment director at Charlemagne Capital.
Europe was different, partly as a result of oil heavyweight
BP's <BP.L> third-quarter results beating forecasts. []
The pan-European FTSEurofirst 300 <> index of top
shares was up 0.2 percent.
WEAKER DOLLAR
The dollar weakened against a basket of major currencies
despite the fall in stocks, which in recent months has tended to
boost the currency.
It was partly a reaction to sharp gains on Monday, when the
the euro had its steepest drop since early August, falling
nearly 1 percent, and the dollar index posted its best daily
gain since September.
The dollar index <.DXY>, a measure of the greenback's
performance against six other major currencies, fell 0.2 percent
to 75.943, but above a 14-month low of 74.94 set last week.
The euro <EUR=> was flat at $1.4877 and the dollar fell 0.4
percent to 91.85 yen <JPY=>.
Demand for euro zone government bonds rose with the two-year
yield <EU2YT=RR> falling 6 basis points to 1.342 percent.
There is major issuance from the United States beganning
later in the day along with a raft European issuance this week.
(Editing by Mike Peacock)
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