* U.S. data weighs on sentiment, demand hurts crude futures
* Spot gold faces largest daily drop of this year
* Turkish lira edges up from record low, yen eases
* MSCI world stock index at lowest level in more than month
NEW YORK, Jan 27 (Reuters) - Emerging market equities hit a five-month low on Monday to lead a global stocks sell-off, while Wall Street failed to hold slight gains as sentiment soured.
Concerns about China's economic slowdown and its shadow banking sector, combined with expectations that the U.S. Federal Reserve will scale back its bond buying further, have put pressure on emerging markets dependent on external financing.
Although the Fed's 16-month-old bond-buying program is meant to boost the U.S. economy, it has also lifted currencies and stocks in emerging markets that have benefited from a rush of international investment and resulting lower interest rates.
Political risks in Ukraine, Turkey and Thailand, however, as well as a looming financial crisis in Argentina, are compounding the problem of emerging markets in a week when the Fed is expected to cut its monthly bond purchases by another $10 billion.
The Turkish lira bounced up from record lows. The country's central bank is expected to ignore political pressures and hike its lending rate to around 10 percent at an emergency meeting on Tuesday. It was unclear, though, whether it would be enough to stem a further slide in the lira.
Safe-havens like the yen and the Swiss franc gave back part of last week's gains against the U.S. dollar, which also benefited from expectations the Fed may continue to reduce monetary stimulus this week.
On Wall Street, strong earnings from Caterpillar gave a boost in early trading. But the company's focus on cutting costs and continued weak sales added to weaker-than-expected December home sales data and the initial rebound evaporated quickly.
Caterpillar gave a boost to the Dow in afternoon trading, but the index failed to close higher.
"Earnings gave investors hope, but the reality of all the moving parts of emerging markets and weak home sales made them rethink how good results from a handful of companies really are," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.
She said investor concern highlighted the complexity of global markets. "This is a clockwork mechanism and when the tiniest thing goes wrong, the clock stops working; it's not well-understood, and it has all these unintended consequences."
The Dow Jones industrial average fell 41.23 points or 0.26 percent, to 15,837.88, the S&P 500 lost 8.73 points or 0.49 percent, to 1,781.56 and the Nasdaq Composite dropped 44.564 points or 1.08 percent, to 4,083.609.
MSCI's world equity index fell 1 percent and the FTSEurofirst 300 index of top European stocks closed 0.8 percent lower. Emerging market stocks dropped 1.8 percent in the largest daily drop since late August.
China's shadow banking sector, a key source of financing for local corporations, was under the spotlight.
A Chinese trust firm said it had reached an agreement to resolve a troubled high-yield investment product, just days away from what could have been a precedent-setting default in China's shadow banking system.
However, MSCI's gauge of Asian stocks outside Japan slid 1.55 percent.
EMERGING MARKETS DEJA VU
Emerging markets experienced a similar synchronized sell-off last May when the Fed initially suggested a wind-down of its stimulus. This time, local factors are playing a bigger role.
"The question is one of contagion and risks, and that's what we're living through at the moment. You can see the source of the problem is not somewhere else but directly in emerging markets. That's really worrying the market," said David Bloom, head of currency strategy at HSBC.
The Turkish lira, which has been leading the rout in emerging currencies amid a corruption scandal that has rocked Prime Minister Tayyip Erdogan's government, hit a record low of 2.39 to the dollar before regaining some ground after the central bank said it would hold an emergency meeting on Tuesday.
It was last up nearly 2 percent on the day at 2.2827 per dollar.
By limiting U.S. dollar buying to a fifth of monthly wages, the Argentine government revived doubts about its commitment to a more liberal currency market after measures announced on Friday.
The peso weakened 4 percent on the black market to 12.05 per U.S. dollar on Monday, while the official exchange rate was little changed at 7.9898 per dollar.
"Outflows from emerging market forex markets by the investor community are gaining traction and becoming more widespread," Citi strategist Lam Kenneth wrote. "Absent positive emerging market catalysts, the current flow pattern is likely to continue, and could even exacerbate in certain countries."
The safe-haven yen hit a seven-week high of 101.77 per dollar before paring its gains. It last traded down 0.3 percent at 102.63 per dollar.
Following its fifth-straight week of gains, spot gold also fell, down 1.1 percent to $1,254.79 per ounce. The drop was the largest since Dec. 30.
The 10-year U.S. Treasury yield traded near a two-month low of 2.706 percent hit on Friday. Benchmark 10-year notes were down 7/32 in price to yield 2.7589 percent.
Oil futures prices fell as investors continued to dump risky assets on worries about weaker growth in emerging markets. Brent crude was down 82 cents to $107.06 a barrel and U.S. oil fell 89 cents to $95.75.