Sterling down but off 1-mth lows as stocks rebound

* Sterling down 0.4 percent at $1.6441 GBP=, but off lows

* UK stocks fall on Dubai debt concerns, then recover

* UK '09 GDP likely fell more than fcast - Treasury sources

LONDON, Nov 27 (Reuters) - Sterling hit one-month lows against the dollar and euro on Friday on concerns about the potential damage to the fragile UK banking sector from Dubai's surprise delay on debt repayments.

Major UK banks have made large investments in Dubai. Middle Eastern players have also been big buyers of sterling recently.

"The UK has the biggest loan exposure to Dubai among the G7, which should ensure sterling underperformance against the forex majors," said Lena Komileva, head of G7 market economics at Tullett Prebon.

But the pound came off its lows as UK shares recovered, led by bank shares which were hammered the previous day. London's leading index .FTSE was up 0.8 percent on the day after falling sharply earlier in the session.

Trade was volatile in a holiday-thinned market. U.S. markets were on a shortened session after being closed the previous day for Thanksgiving Day holiday. By 1503 GMT, sterling was down 0.4 percent at $1.6441 GBP=D4 after falling to $1.6272, its lowest since Nov. 3.