* Sterling hits 7-1/2-year low vs dollar on UK banking woes

* Euro/dollar hits 6-week low

* Stocks slide keeps risk aversion high, boosting dollar

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By Naomi Tajitsu

LONDON, Jan 21 (Reuters) - Sterling tumbled on Wednesday, hitting a 7-1/2-year low against the dollar, as intensified risk aversion drove investors back into the U.S. currency which reached its strongest levels against the euro in six weeks.

The pound extended deep losses on the view that an ailing UK financial sector will keep the economy weak despite bank bailouts, fiscal stimulus and drastic interest rate cuts. A surge in UK joblessness also kept sterling weak.

Economic worries around the world stung global stock markets and sliding European shares kept pressure high to dump risky assets, boosting the dollar and the yen.

"There's a lot of jitters in the financial markets, and it's taking its toll on currencies which have stressed capital financing needs and which are particularly exposed to financial sector weakness," said Phyllis Papadavid, currency strategist at Societe Generale in London.

She added that this had put sterling in the firing line, and that the euro would also continue to suffer.

Sterling was hit as UK banking shares took a beating on the view that the British financial sector continues to deteriorate despite the government's latest bank rescue plan, putting the broader economy in deep trouble.

Bank of England Governor Mervyn King said on Tuesday that the UK economy will likely shrink significantly in the first half of the year, and that policymakers need to consider using more than just interest rates to stimulate demand. [ID:nLK713961]

Economic worries were not confined to the UK, however. European shares .FTEU3 fell 1.7 percent and edged towards their lowest in nearly six years, reminding investors that the global economy is continuing to suffer despite dramatic rate cuts and fiscal stimulus plans by authorities around the world.

Sterling <GBP=D4> fell more than 1 percent to $1.3715, its weakest since mid-2001. The pair has fallen more than 7 percent so far this week, its biggest weekly slide since late October.

Sterling dropped across the board, hitting a record low of 123.01 yen <GBPJPY=R> against the low-yielding Japanese yen, which tends to rally during periods of risk aversion.