REFILE-UPDATE 2-Abu Dhabi SWF sees risk to global economy

* Adia: no interest in controlling stake in European banks

* Adia adjusted asset class weightings to cope with downturn

* U.S. treasuries to remain key diversification tool

(Makes clear in paragraph 11 that although Adia has no regular obligation to contribute to Abu Dhabi's spending requirements, the emirate has tapped the fund over its history "a few times" to meet short-term needs)

By Thomas Atkins and Stanley Carvalho

DUBAI/ABU DHABI, Jan 11 (Reuters) - Abu Dhabi Investment Authority (Adia), considered the world's largest sovereign wealth fund, still sees big risks to the global economy and plans to refine its investment approach to cope with downturns.

In an interview published in German business daily Handelsblatt on Monday, Sheikh Ahmed bin Zayed al Nahayan, Adia's managing director, also said U.S. treasuries were still the most liquid benchmark, and will remain an important diversification tool.

The sovereign wealth fund, believed to have assets around $500-$700 billion, rarely details its investment strategy or investments.

Sheikh Ahmed -- part of the ruling family of Abu Dhabi, the wealthiest member in the United Arab Emirates' federation -- said Adia would focus on a highly diversified investing strategy and exercise "great caution" before making long-term adjustments in the midst of a major downturn.

"While attention now is on the recovery, we can't lose sight of the many substantial risks that still exist," he said in the transcript of the interview provided to Reuters.

In the wake of the global financial crisis, Sheikh Ahmed said Adia was reviewing its performance.

"You can be sure that, like everyone else, we are looking closely to identify areas where strategies perhaps did not work as well as they could have, and will refine our approach where needed."

Adia has switched its weightings across asset classes to reduce the impact of economic downturns over the past 18 months, he said, adding that its allocation to global equities had averaged 40-60 percent, with 60 percent of that indexed.

Regionally, the wealth fund has its largest allocation in the U.S., with 35 to 50 percent, followed by Europe at up to 35 percent and Asia at up to 20 percent.

Sheikh Ahmed declined to comment on Adia's dispute with Citigroup (C.N) over a $7.5 billion investment, reiterating that the fund would pursue its legal rights.

EMERGING MARKETS

The sovereign wealth fund, formed in 1976, said it had no regular obligation to contribute to Abu Dhabi's spending requirements but the emirate has tapped the fund over its history "a few times" to meet short-term needs, Sheikh Ahmed said.

Abu Dhabi stepped in to bail out its neighbouring emirate of Dubai last year -- most recently with a $10 billion lifeline in December -- to help it meet debt repayment obligations.

Sheikh Ahmed said the fund was positive on the long-term outlook for emerging markets, particularly in Asia, but remained wary.

"The fact that so many global investors are focused on these markets also means there is potential for valuations to be stretched, which is something we monitor constantly," he said.

He added that emerging markets were expected to outperform developed countries over the medium- to long-term.

"It is good to see that Adia is giving out more information to the markets, signs of levels of transparency in the UAE is increasing," said Marios Mariethafis, regional head of research, Standard Chartered in Dubai.

"It is also an acknowledgement of the importance of emerging markets and Asia ... but the challenge is that Asia should develop its capital markets to benefit from inflows from the Middle East," he added.

Adia, whose investments in publicly listed firms rarely exceed 5 percent, might consider a larger investment in some assets, such as real estate, Sheikh Ahmed added.

"(But) the rumours that circulate occasionally about Adia planning takeover bids or looking to buy controlling stakes in one company or another are invariably a case of mistaken identity," he said.

(Writing by Amran Abocar; Editing by Rupert Winchester)