By Jeremy Gaunt, European Investment Correspondent
LONDON (Reuters) - The rollercoaster that is world stockmarkets hit the dips again on Friday, falling on bank worriesafter Merrill Lynch posted a $4.9 billion (2.5 billion pound)loss, while the dollar gained and oil reversed a steepthree-day slide.
Markets were also pondering a Wall Street Journal reportthat embattled U.S. mortgage giant Freddie Mac is consideringraising capital by selling as much as $10 billion in new sharesto investors.
After-the-bell in New York overnight, investment bankMerrill posted a much larger-than-expected $4.89 billionquarterly loss after writing down soured debt. It also unveiledplans to sell billions of dollars of assets to shore upcapital.
The results fed into investor angst about the continuingstress on the financial sector from the credit crisis, althoughnot all results have been as bleak. JP Morgan, for example,reported better-than-expected earnings.
The market focus was on the report from global bankinggiant Citigroup due later in the day.
MSCI's main world stock index was down 0.5 percent for amore than 15 percent loss so far this year. The pan-EuropeanFTSEurofirst 300 was also down 0.6 percent.
"The results from Citigroup will be key because it isprobably the most exposed to risky assets among the largebanks," said Thierry Lacraz, strategist at Swiss bank Pictet.
Earlier, Japan's Nikkei stock average slipped 0.7 percentfor its sixth straight week. It closed down 84.25 points at12,803.70. The broader TOPIX shed 0.9 percent to 1,252.43.
OIL RECOVERS, DOLLAR SLIPS
Oil prices climbed more than $1.50 a barrel to sit above$130 as buyers came back into the market after a more than 10percent slide since Tuesday.
Easing tensions between Iran and the West and worries thathigh prices and a weaker U.S. economy will undermine demand hadcombined to send oil down $15 in just three days.
U.S. light crude rose $1.70 to $130.99 a barrel, still welloff the record high of $147.27 hit on July 11.
"The pullback is perceived as an opportunity to buy," saidGerard Burg of Australia National Bank in Melbourne.
On foreign exChange markets, the dollar rose slightlyagainst the euro to $1.5834 and against the yen to 106.45.
Against a basket of six major currencies, the dollar was upa quarter of a percent at 72.02.
"There will be a focus on Citigroup later today. There'snot really much happening macro-wise," said Daragh Maher,senior currency strategist at Calyon.
Euro zone government bonds were generally underpinned bythe falling equity markets.
Ten-year bond yields were flat at 4.457 percent while2-year yields fell a basis point to 4.366 percent.
(Editing by Ruth Pitchford)
