* MSCI world equity index hits lowest since July 2010
* Europe bank stocks hit; heavily Greece-exposed Dexia plunges
* Euro hits 10-year low vs yen; German 5-year CDS hit record
By Natsuko Waki
LONDON, Oct 4 (Reuters) - World stocks hit a fresh 15-month low on Tuesday and the euro fell across the board as the growing prospect of a near-term default by Greece stoked fears of a major banking crisis in Europe, which would accelerate a global economic slowdown.
The cost of insuring German sovereign debt against default hit a record high for a second day in a row, reflecting concerns that the euro zone's paymaster-in-chief will have to dig ever deeper into its pockets to bail out the region's weaker states.
A fresh sell-off in risky assets began after euro zone finance ministers said they were reviewing the size of private sector involvement in a second bailout package for Greece, a move that could undermine the aid plan and hasten a default.
The prospect of private creditors taking a bigger writedown on their holdings of Greek debt than agreed in July added to unease about an already fragile European banking sector.
European banking shares fell 4.2 percent, with Dexia shedding as much as 37 percent on top of its 10 percent fall on Monday due to worries about the Franco-Belgian bank's heavy exposure to Greece.
"The tone for the euro is sour after the failure of the euro zone finmins to bring anything concrete to the table with respect to Greece," said Jane Foley, senior currency strategist at Rabobank.
"The market is increasingly worried about the potential of the Greek crisis and the calamity that could be created if there was a messy default."
There had been no discussion about Greece defaulting, the country's finance minister told a news conference in Athens.
The MSCI world equity index fell 1.5 percent, hitting its lowest since July 2010. The index has fallen more than 18 percent since January and more than 24 percent since hitting a three-year high in March.
U.S. stock futures were down 0.3 percent
BANKS UNDER PRESSURE
European stocks lost 2.6 percent while emerging stocks fell 2 percent to hit their lowest since September 2009.
Dexia, whose shares hit a record low, vowed to fix its balance sheet after Moody's placed the group on a review for a possible downgrade, warning about its liquidity. According to a Belgian newspaper report on Tuesday, Dexia could be split up and its 'good' assets sold by the end of 2011.
France and Belgium, working with central banks, said they would take all measures necessary to protect Dexia's account holders and creditors.
Euro zone ministers also agreed Greece could wait until mid-November for the next instalment from the existing aid programme, putting further pressure on Athens to get to grips with its debt problems .
"What you're now beginning to see is they (investors) are now picking out the banks. Dexia is the weakest," said Justin Urquhart Stewart, director at Seven Investment Management.
"Politicians have to stand behind these banks -- whether you call it state support, nationalisation, you have to keep the financial system working otherwise we will end up with another credit crisis."
German five-year credit default swaps rose to 121 basis points while Belgium's five-year CDS gained 14 bps to 286 bps, close to a Sept 22 record high.
U.S. crude oil
Bund futures
The dollar rose 0.4 percent against a basket of major currencies to a fresh nine-month high. The euro fell as low as $1.3144, a nine-month trough. It also fell to a 10-year low of 100.78 yen . (Editing by John Stonestreet)