UBS write-downs reignite credit concerns

LONDON (Reuters) - European stocks and the dollar fell on Wednesday while Wall Street was set for a weaker open as UBS (UBSN.VX) bank unveiled $4 billion in new writedowns, stirring fears the credit crisis is deepening.

U.S. stocks were seen starting weaker as investors grew reluctant to buy risky assets ahead of the U.S. interest rate decision, where the Federal Reserve is expected to follow up on its emergency rate cut last week with another hefty easing.

UBS is among the hardest-hit of the banks around the world that have collectively suffered more than $100 billion in losses from the crisis originating from defaults in U.S. subprime mortgages.

"2007 (was) a horrible year for the banks and the sector is not out of the woods yet," said Franz Wenzel, strategist at AXA Investment Managers in Paris.

"The fourth-quarter reporting season will be a real acid test for the banks. Most of the banks will try to put all the write-downs in their 2007 results as they want to clean the balance sheet going forward."

The FTSEurofirst 300 index .FTEU3 was down 0.6 percent, while the MSCI main world equity index .MIWD00000PUS was down 0.3 percent, having hit a 15-month low last week. U.S. stock futures were down around 0.4 percent, signaling a weaker start on Wall Street.

DIMINISHING PREMIUM

The dollar fell to a two-week low against a basket of major currencies .DXY as investors braced for a half-point cut in U.S. benchmark rates, currently at 3.5 percent. Further easing erodes the dollar's already fast-diminishing premium over other currencies.

"They could well maintain the recent aggressive pace of rate cuts, given that we believe it's not so much equity market declines that's forcing the hand of the Fed but in fact the deterioration in the financial system," said Ian Stannard, senior foreign exchange strategist at BNP Paribas.

"If we do see an aggressive move from the Fed, then we could well see the dollar coming under a bit more downward pressure in the near term."

The dollar already offers lower premium than the euro, Nordic currencies and the Canadian dollar.

Emerging sovereign spreads were steady, while emerging stocks .MSCIEF fell more than 1 percent.

The March Bund future erased early gains to stand down a quarter percent.

U.S. light crude hit a two-week high above $92 a barrel, underpinned by expectations that U.S. monetary policy easing will support the economy and demand for energy.

Gold slipped to $925.10 an ounce from Tuesday's record highs.

(Additional reporting by Blaise Robinson and Toni Vorobyova; editing by Tony Austin)