GLOBAL MARKETS-Dollar dips from 2-week high, stocks in the red

* Yen rebound weighs on dollar

* Earnings, banks drag European stocks lower

* Investor (LSE: 0NC5.L - news) caution supports bonds

By Jamie McGeever

LONDON, May 11 (Reuters) - The dollar fell on Wednesday, succumbing to a bout of profit-taking after hitting a two-week high the previous day, while European stocks also put a positive start to the week behind them to trade in the red.

Weak corporate earnings weighed on stocks, as Germany's DAX snapped a four-day winning streak and the broader FTSEuroFirst 300 index of leading European shares erased much of Tuesday's rise, which was the biggest in three weeks.

U.S (Other OTC: UBGXF - news) . futures pointed to a fall of around a third of one percent on Wall Street .

"The growth outlook remains tepid at best and visibility is poor. Sentiment is now very fragile with the instinctive reflexive 'buy on dips' that has served investors well is now being supplanted by 'sell the rally'," said Mike Ingram, market strategist at BGC Partners (NYSE: BGCA - news) in London.

"And that is precisely what we are seeing today."

Financials were among the biggest losers in Europe, their 1.5 percent fall led by a 10 percent plunge in Austrian bank Raiffeisen Bank International (LSE: 0NXR.L - news) after it said it will look into a possible merger with RZB.

Shares (Berlin: DI6.BE - news) in outdoor advertising firm JC Decaux (Other OTC: JCDXY - news) slumped nearly 10 percent after it issued a weak second-quarter outlook, causing several investment banks to cut their ratings and price targets on the stock.

MSCI (NYSE: MSCI - news) 's broadest index of Asia-Pacific shares outside Japan slipped 0.2 percent, resuming the recent downtrend. The index has risen only one day in the last three weeks and on Tuesday it hit an eight-week low.

Japanese shares ended flat, with the Nikkei relinquishing earlier gains as the rally in the yen gathered steam.

MSCI's broad gauge of global stocks slipped back. On Tuesday it climbed nearly 1.1 percent, its best session in about a month, in large part driven by the S&P 500's best day in two months, a 1.3 percent rise.

MARATHON, NOT A SPRINT

In currency markets, the dollar's pullback was led by losses against the yen. The Japanese currency had risen to a two-week high earlier this week after a key economic adviser to Prime Minister Shinzo Abe on Tuesday told Reuters that Japan would intervene if the yen firmed to between 90-95 per dollar.

But dealers locked in profits on Wednesday, pushing the dollar down 0.7 percent to 108.50 yen. Last week the Japanese currency hit an 18-month high of 105.55 per dollar.

"The recent rise in dollar/yen might be seen as a victory for the Bank of Japan but, perhaps unfortunately, this looks more like a marathon than a sprint," said Steve Barrow, head of G10 strategy at Standard Bank.

The euro rose 0.2 percent on the day to $1.1390. Last week it traded at $1.16, its highest this year.

The dollar's index against a basket of six major currencies was down a quarter of one percent at 94.070, easing back from Tuesday's two-week high of 94.150.

Bonds remained well supported, indicating investors were wary about the prospects for riskier assets in the near term in an environment of sluggish global growth.

An auction of three-year U.S. notes on Tuesday was received well. Yields on 10-year debt were at 1.75 percent, not far away from a 2016 low of 1.53 percent.

German government bonds also reflected the cautious undertone in global markets, with the 10-year yield down a basis point at just 0.11 percent.

Longer-dated yields on peripheral Spanish and Italian bonds, however, climbed to multi-month highs on Wednesday as Spain started the sale of a 50-year bond and investors anticipated Italy may soon do the same.

Spain's benchmark 30-year bond yields rose 11 basis points to a two-month high of 2.86 percent and Italy's rose 9 basis points to a three-month high of 2.78 percent .

In commodities, oil prices fell around 1 percent as traders cashed in on Tuesday's rally of around 4 percent. Brent crude futures were down at $45.10 per barrel and U.S. crude futures were at $44.20 per barrel.

(Reporting by Jamie McGeever; Editing by Andrew Heavens)