UPDATE 1-Manulife plans to keep building capital - CEO

* Building reserves against market volatility

* May use capital reserves to fund expansion

* Sees Europe presence within five years

* Expects regulators to demand more capitalization (Recasts, adds details)

By Pav Jordan

TORONTO, July 8 (Reuters) - Canada's top life insurer, Manulife Financial Corp (MFC.TO), plans to keep building capital to shield it from volatile markets, and could use those reserves for expansion or acquisitions down the road.

"I would anticipate that if we do end up in a position, which I would fully expect, down the road where we have excess capital, that we would be able to make use of that," Manulife President and Chief Executive Donald Guloien told analysts at a luncheon on Wednesday, hosted by Bank of Montreal (BMO.TO).

Manulife is aggressively building reserves as it recovers from exposure to billions of dollars in liabilities incurred by its variable annuity business during the global economic crisis, when stock markets tumbled and bets turned sour.

Its stock is currently near C$19 a share these days, better than lows around C$9 reached in March, but still far below the C$40 mark of September last year.

Guloien, who introduced Manulife's new chief financial officer, Michael Bell, wants to build a fortress against market volatility. He but did not say how much reserves must grow, or how long his defensive strategy will last.

"I want us to be very conservatively capitalized for the next little while because I do believe that there is an unprecedented degree of volatility in our markets and as much as we might think that the most likely case is way more optimistic than that, we have to be prepared for the downside in our capital planning," he said.

Toronto-based Manulife said this week it would issue C$1 billion ($862 million) of notes to strengthen balance sheets.

STAYING AHEAD OF THE CURVE

Guloien, a 28-year company veteran who took over as chief executive in May, predicted global regulators would demand more capitalization from companies like Manulife, because they have systemic importance in their home countries or abroad.

"I think it is only reasonable to expect that this trend is going to take place and I would like us to be ahead of the curve, building for that, as opposed to reacting to it when it happens, because the cost of capital is likely to go up when the rules are invoked," Guloien said.

"So, building our capital strength at both the consolidated and subsidiary level remains a continuing focus."