Shares in Swiss-based bank UBS AG fell to a near 2-1/2 year low on Tuesday on renewed fears the group may have to make more hefty writedowns for exposure to assets hit by the subprime crisis.

Speculation also swirled in Zurich that UBS, which ranks eighth in the FTSE Global Banks index by market value, might be forced to cut its dividend, or even resort to a capital increase to protect its Tier 1 capital as a result of any writedown.

UBS shares fell as much 3.6 percent in morning trade to 48.70 Swiss francs, a level not seen since June of 2005, but by 1200 GMT they had recovered and were trading 0.2 percent up at 50.70 francs.

Although UBS confirmed again last week that it would have a profitable fourth quarter, rumours are growing today again about a further writedown worth $9 billion, said analysts at Vontobel in a note.

At the height of the morning selloff, trading in UBS stock was briefly stopped by the automatic trading system after it suffered a sharp price fall, though a Swiss stock exchange spokesman played down the significance of the interruption.

It's a safety valve ... it occurs automatically when the difference between the last transaction and the next one would be more than 2 percent, said the spokesman. It's a mechanism which allows traders to reconsider their positions in the order book.

UBS shares, which hit a record 80.90 francs in February, have been under pressure since revelations surfaced in May of big losses stemming from exposures to subprime-related structured products and collateralised debt obligations (CDOs).

The bank announced its first quarterly group loss in five years at the end of October, after taking 4.4 billion Swiss francs ($3.9 billion) in writedowns on subprime-related exposures.

The announcement on Monday by Swiss reinsurer Swiss Re that it was taking a 1.2 billion francs writedown has put even more pressure on UBS.

Swiss Re wrote down exposures to highly risky CDOs to zero, prompting some analysts to say UBS -- which has been much less aggressive in its writedowns on exposures -- should do likewise even if it entails taking a huge charge in a single quarter.

Swiss Re's writedown reminds people of the risk embedded in the UBS stock, said a London-based analyst with a U.S. investment bank. This increases the pressure on UBS massively.

On Monday, Citigroup Inc shares suffered a fresh beating after Goldman Sachs downgraded the stock to sell and said the largest U.S. bank may have to write off $15 billion over the next two quarters as mortgage losses reduce earnings.

(Additional reporting by Thomas Atkins; Editing by Andrew Callus and David Holmes)

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