(Adds quote, details on BMPS rescue plan, updates prices)
* European shares make modest gains as banks recover
* Monte dei Paschi's rescue plan gets Generali boost
* Asian shares edge lower, yen strength hits Tokyo
* Dollar steadies; low-rated euro zone bond yields fall
* Brent crude down on jitters before Wednesday OPEC meet
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Abhinav Ramnarayan
LONDON, Nov 29 (Reuters) - Oil prices fell more than 1.5 percent on Tuesday, capping gains on European equities, as markets waited to see whether OPEC would be able to hammer out a meaningful output cut during a meeting to rein in a global supply overhang and prop up prices.
Italian banking stocks staged something of a recovery after Monte dei Paschi's rescue plan got off to an encouraging start but miners came under renewed selling pressure after a sharp decline in commodities prices.
"The fact that the FTSE 100 is going one way and the FTSE 250 is going the other way suggests that there is a sector specific event going on, as the FTSE 100 is more commodities heavy," said Investec economist Philip Shaw.
The miner-heavy FTSE 100 index was down 0.56 percent but the FTSE Mid 250 edged higher at 1145 GMT.
Outside of the commodities sector, investors appeared inclined to take on more risk, with Italian stocks up 0.94 percent and the banking sub-index up 2.3 percent. This helped push the STOXX Europe 600 Index up 0.16 percent in early trades, though it heading back towards parity by 1145 GMT.
"There seems to be some hope that Monte dei Paschi's debt-for-equity swap will go through, but I don't think anyone is optimistic about the banking sector in Italy," said OANDA senior market analyst Craig Erlam.
Monte dei Paschi's rescue plan got off to a good start after Generali's board approved a conversion of 400 million euros in Monte dei Paschi subordinated bonds into shares, according to Italian press reports.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.27 percent after two days of gains. Tokyo stocks slipped 0.3 percent, hit by a relatively strong yen.
European government bond markets were also trending in this direction, with safe-haven Germen government bond yields up 1-2 basis points and lower-rated Italian, Spanish and Portuguese bond yields lower.
Italy, in focus ahead of a referendum this weekend, led the gains on the day with its 10-year bond yields down 6.9 basis points to 1.98 percent.
Yields also fell after Reuters reported that the European Central Bank is ready to by more Italian bonds if there is turmoil after the constitutional referendum on Sunday.
"Citi's base case is for a No vote to prevail with political uncertainties likely to remain elevated over the near-term," wrote analysts at Citi.
"It's worth watching whether PM Renzi resigns in the event of a No vote as promised, before rushing into euro shorts."
The event has brought Italy's ailing banking sector sharp relief, and earlier this week Italian banking stocks hit their lowest point since end-September on continued worries over a cash call at troubled Monte dei Paschi.
"Renzi has been such a massive driving force in terms of finding alternatives to reform the banking sector, so him going would be problematic even without considering the political instability it would bring," said Erlam.
The political risk kept the euro restrained despite the pullback in the dollar. The single currency fell 0.17 percent to $1.0597.
The dollar was again moving higher on the yen to reach 112.615, after profit-taking pulled it down as far as 111.58. It remains over 7 percent higher for the month.
Dealers reported Japanese buying for the new month with orders today settling on Dec. 1. Against a basket of currencies, the dollar held at 101.330 and not far from last week's 14-year peak.
The greenback was still on track for its strongest two-month gain since early 2015, underpinned by expectations the Federal Reserve is almost certain to hike interest rates next month.
For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Additional reporting by Wayne Cole in Sydney; Editing by Jeremy Gaunt)