* Italian shares, euro rise as Italy limps towards bank rescue
* Profit-taking pulls dollar off this week's highs
* Wall Street set to open down slightly
* Crude oil slips, metals extend decline
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Marc Jones
LONDON, Dec 22 (Reuters) - European markets were poised for one last burst of action before the end of the year on Thursday, with Italy expected to outline plans to rescue the world's oldest and now its most troubled bank, Monte dei Paschi di Siena.
With investors in most major markets already in holiday mode, stocks, oil and metals drifted lower in thin trading and even the dollar eased off this week's 14-year high.
Futures pointed to a slightly lower open on Wall Street although U.S. shares remain very near all-time peaks.
Shares in Milan climbed 0.6 percent, flanked by the euro on hopes for a government bailout for Monte dei Paschi, while European shares followed Asian markets down.
Sources told Reuters the bank failed to pull off a last-ditch private rescue plan on Wednesday, meaning a state rescue looked inevitable with reports in Italy on Thursday saying that could be completed between two to three months.
"This situation has dragged on for years without a clear solution. Now a solution is in sight," LC Macro Advisors head Lorenzo Codogno said.
"My perception is that the government backstop will be welcomed by financial markets and it will be a plus for the (Italian) economy as well."
The Monte dei Paschi saga is one of the reasons why Rome's government bonds have been the worst performing in the euro zone this year, losing roughly 4 percent. tmsnrt.rs/2hncDTn
Benchmark 10-year Italian and Spanish yields rose 4-5 basis points (bps) to 1.86 percent and 1.41 percent , respectively, broadly in line with the wider bond market.
Despite Italy's climb, the pan-European STOXX 600 was down 0.1 percent, falling for a second straight session after hitting its highest level since Jan. 4 on Tuesday.
Miners were the biggest sectoral fallers, down 1.4 percent as copper hit a one-month low but that comes after a near 60-percent surge for the stocks in 2016.
The dollar, which has been on a tear since Donald Trump's election win stoked hopes of a fiscal boost for the U.S. economy, also dipped for a second day as traders booked profits before a batch of U.S. data including revised GDP figures.
"You could see the dollar continue higher next year, maybe mid-single digit for the DXY index, but we would be surprised if it was another 10 percent," JP Morgan Asset Management global market strategist Mike Bell said.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.7 percent with the Nikkei finishing 0.1 percent lower having hit one-year highs this week.
Japan's cabinet approved a record $830 billion spending budget for fiscal 2017 that counts on low interest rates and a weak yen to limit borrowing, underscoring the challenge Tokyo faces in curbing the industrial world's heaviest debt burden.
Hong Kong's Hang Seng index was down 0.8 percent after touching its lowest levels since July, though Australian shares finished up 0.5 percent, extending their gains into a fourth straight session.
In Europe, the euro was last up 0.3 percent at $1.0449 having pushed away from Tuesday's near 14-year low of $1.0352 after attacks in Germany and Turkey.
Crude oil prices slipped in tepid trading, pressured by an unexpected rise in U.S. crude inventories last week and moves by Libya to boost output over the next few months.
U.S. crude dropped 35 cents to $52.14 per barrel, while Brent crude shed 35 cents to $54.11. Spot gold edged down to $1,129.91 an ounce while industrial metals copper, zinc and tin continued their recent declines.
Major moves were thin and far between though with many investors already departing ahead of this weekend's Christmas and New Year holiday. Markets in Tokyo will be closed on Friday for the Japanese Emperor's birthday.
The dollar edged up 0.1 percent against its Japanese counterpart to 117.65 yen, but remained shy of its 10-1/2-month high of 118.66 touched on Dec. 15.
Later on Thursday, the United States will release a third revision of U.S. third-quarter gross domestic product. Durable goods orders for November and weekly initial jobless claims were also scheduled to be released.
"There's a lot of year-end book-closing and position-squaring, and less in terms of data and events to go on," Barclays Singapore's head of FX strategy, Mitul Kotecha, said. (Additional reporting by John Geddie in London and Lisa Twaronite in Tokyo; editing by Susan Thomas)