* World stocks, emerging markets, Japan fall
* Europe up on BP results.
* Wall Street looks to open flat
* 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, but the retreat failed to boost
the dollar which fell after the previous sessions' gains.
European stocks bucked the overall trend, rising on
better-than-expected earnings from BP <BP.L>. Wall Street looked
to open flat to slightly higher after a slump on Monday.
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 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
Julian Mayo, investment director at Charlemagne Capital.
Europe was different, partly as a result of oil heavyweight
BP's <BP.L> third-quarter results. []
The pan-European FTSEurofirst 300 <> index of top
shares was up 0.2 percent.
"BP is ahead of expectations which is good news, but we
have had a strong market environment which obviously helped,"
said Peter Dixon, economist at Commerzbank.
"Investors are still concerned about committing huge amounts
of cash to equities, they are not sure whether there is going to
be a bigger correction," he said.
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.
On Tuesday, the dollar index <.DXY>, a measure of the
greenback's performance against six other major currencies, fell
0.1 percent to 75.990, but above a 14-month low of 74.94 set
last week.
The euro <EUR=> was flat at $1.4863 and the dollar fell 0.2
percent to 92.00 yen <JPY=>.
Demand for euro zone government bonds rose with the two-year
yield <EU2YT=RR> falling 6 basis points to 1.342 percent.
(Additional reporting by Joanne Frearson; Editing by Ruth
Pitchford)
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