GLOBAL MARKETS-U.S. stocks slip on weak earnings; sterling shines

* U.S. stocks down with bond prices, dollar

* Sterling hits highest in year vs euro after UK data

* European shares, periphery bonds extend gains

* Dollar index steady on Fed taper prospects

* Australia inflation data hurts shares, lifts Aussie

By Barani Krishnan

NEW YORK (Frankfurt: HX6.F - news) , Jan 22 (Reuters) - U.S. stocks fell on Wednesday as disappointing company earnings gave investors few reasons to extend last year's rally, while bond prices slipped with the dollar as markets took in their stride another possible cut in the Federal Reserve stimulus.

European assets grabbed the spotlight, with sterling hitting a three-week high against the dollar and a one-year high against the euro on hints of an impending UK rate hike. European stocks extended gains on encouraging corporate results and a rally in southern euro zone government bonds.

An upgrade of the International Monetary Fund's world forecasts lifted sentiment in global equities, keeping world stocks steady..

On Wall Street, the S&P 500 and Dow were down, while the tech-heavy Nasdaq rose.

"There has been little so far to excite the masses and it is going to lead many to question, can this market hang in there with flat earnings environment?" said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.

IBM (NYSE: IBM - news) shares lost 3.3 percent to $182.24, becoming the biggest drag on both the Dow and S&P 500 indexes. The world's largest technology services company missed revenue expectations for a fourth straight quarter amid weakening demand, particularly in growth markets like China.

Coach Inc (NYSE: COH - news) tumbled 6 percent to $49.38, the worst performer on the S&P 500. It said sales in North America fell further in the final quarter of 2013, as it lost share in the handbag business to fast-growing rivals.

United Technologies Corp (NYSE: UTX - news) was up 0.9 percent at $116.01, offsetting some of the bearish sentiment. The world's largest maker of elevators and air conditioners reported higher fourth-quarter profit that topped Wall Street estimates, despite revenue that fell shy of expectations.

Norfolk Southern Corp jumped 6.4 percent to $94.39 as one of the best performers on the S&P 500. The railroad posted a 24 percent rise in quarterly income that beat Wall Street expectations. The gains helped lift the Dow Jones Transportation average to a record high.

Those weren't enough to lift the broader market, though.

By 11:52 a.m. EST (Other OTC: ECPCY - news) (1652 GMT), the Dow Jones industrial average was down 59.85 points, or 0.36 percent, at 16,354.59. The Standard & Poor's 500 Index was down 1.37 points, or 0.07 percent, at 1,842.43. The Nasdaq Composite Index was up 9.97 points, or 0.24 percent, at 4,235.73.

"It will be easier to unnerve a market with less earnings confidence, and you are seeing companies like IBM and Coach that have come out and leave the investor looking for something substantial to bite into," said Janlyn Capital's Bakhos.

The dollar slipped against sterling and the Aussie dollar while it was little changed against a basket of currencies . Investors expect the Fed to make another $10 billion cut to its monthly bond-buying program of $75 billion. The central bank's policy-setting committee will meet on Jan. 28-29.

The pound rallied after another sharper-than-expected fall in UK unemployment, to 7.1 percent, provided fresh proof of a strengthening economy and bolstered speculation that a Bank of England rate increase may not be too far off.

Minutes from the BoE (Shenzhen: 000725.SZ - news) 's last meeting, released at the same time as the data, showed policymakers now acknowledged unemployment was likely to fall to the 7 percent threshold they have set for reviewing the bank's policy, "materially earlier" than expected.

The news sent sterling surging to its highest in a year against the euro, up against the dollar while UK government bonds, or gilts, lost out as investors sought out higher-rewarding alternatives.

"It will certainly be the big challenge for Bank of England governor Mark Carney and the MPC (Monetary Policy Committee) in managing the forward guidance," said Michael Hewson, chief strategist at CMC Markets.

"What does he do when it does hit 7 percent? ... I think the only way is up for the pound."

U.S. Treasuries prices fell and benchmark yields edged up from five-week lows, with prices dragged lower by weaker German government debt.

The benchmark 10-year U.S. Treasury note was down 7/32 to yield 2.849 percent. The 10-year yield hit 2.818 percent on Friday, its lowest level since Dec. 11, according to Reuters data.

World stocks were flat while European stocks rose for a second straight day.

Among commodities, oil climbed on expectations that accelerating growth in industrialised economies would lift demand. U.S. crude oil futures rose almost 2 percent to $96.77 a barrel, its highest since Jan. 2.