* Italian bank stocks take big hit on budget concerns
* Wall Street gains led by Nvidia later dented by Facebook
* Brent crude hits 4-yr high with U.S. sanctions on Iran (Adds settled oil prices, Facebook and Tesla moves; recasts with lower Wall Street; updates throughout)
By Hilary Russ
NEW YORK, Sept 28 (Reuters) - The U.S. dollar rose on Friday as the euro fell on deepening worries about the Italian budget and its new higher-than-expected deficit target, which also slammed European stocks.
Wall Street pulled back from early gains by Facebook after the social network disclosed a security breach, and Tesla shares sank 14.2 percent after U.S. regulators sued Chief Executive Elon Musk.
In Italy, Rome on Thursday targeted a budget deficit of 2.4 percent of gross domestic product (GDP) for the next three years, marking a victory for party chiefs over economy minister Giovanni Tria, an unaffiliated technocrat.
The deficit, though within the prescribed EU limit of 3 percent of GDP, is a concern for investors who fear the anti-establishment government is not committed to tackling its huge debt load. Italy's debt-to-GDP ratio stands at about 130 percent, the highest in the euro zone behind Greece.
The pan-European FTSEurofirst 300 index lost 0.83 percent. Shares in Italian banks fell as much as 8.5 percent and closed 7.26 percent lower.
Italian government bonds were set for their worst day since a brutal May 29 sell-off, up 34-42 basis points across the curve.
The euro fell 0.25 percent to $1.161. MSCI's gauge of stocks across the globe shed 0.27 percent.
Wall Street started out in a rosier mood, with the tech sector getting a boost from higher Nvidia Corp shares after Evercore raised the chipmaker's price target to $400.
The Dow Jones Industrial Average fell 12.71 points, or 0.05 percent, to 26,427.22, the S&P 500 lost 1.49 points, or 0.05 percent, to 2,912.51 and the Nasdaq Composite dropped 1.42 points, or 0.02 percent, to 8,040.55.
In Asia earlier, Japan's Nikkei stock index raced to a 27-year high on renewed optimism over the global economy and hopes of a boost to its exporters' earnings from a weaker yen. The index closed 1.36 percent higher.
The dollar index rose 0.25 percent.
"The U.S. dollar remains a metaphorical rock in a sea of troubles," said Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto.
"The growth outlook for other Group of 10 countries and the emerging markets remains uncertain, and increased confidence in the forces compelling the Federal Reserve to hike rates next year is helping to lift the U.S. dollar against its counterparts," he added.
After the Federal Reserve raised interest rates on Wednesday - the third increase this year - Fed Chair Jerome Powell said that the United States does not face a large chance of a recession in the next two years and the central bank plans to keep raising rates gradually.
Benchmark 10-year notes last rose 2/32 in price to yield 3.0482 percent, from 3.055 percent late on Thursday.
"We are seeing safety trade due to the Italian crisis, people are coming in and buying U.S. paper and the dollar," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
Energy stocks also got a boost from oil prices, with Brent crude climbing to a fresh four-year high as U.S. sanctions on Tehran squeezed Iranian crude exports.
U.S. crude oil futures settled at $73.25 per barrel, up $1.13 or 1.57 percent. Brent crude settled at $82.72, $1.00 or 1.22 percent higher.
Additional reporting by Ritvik Carvalho in London, Noel Randewich in San Francisco and Gertrude Chavez-Dreyfuss and Stephanie Kelly in New York Editing by Nick Zieminski