* MSCI world equity index up 0.07 percent at 334.00
* Oil rises more than 6 pct in week on Russia tensions
* European energy stocks follow oil gains
By Carolyn Cohn
LONDON, Aug 23 (Reuters) - Oil briefly rose above $121 a
barrel on Friday on mounting tension between the United States
and Russia, boosting European energy stocks but hurting
government bonds as inflation worries resurfaced.
Crude prices have gained more than 6 percent this week on
the escalating tensions over Russia's military intervention in
Georgia.
Russia, the world's second-largest oil exporter, said on
Thursday it would respond with more than just a diplomatic
protest to a U.S. deal with Poland to station parts of a U.S.
missile defence shield on Polish soil.
"Investors are realising that the bear has put its paw on
the pipeline, and geopolitical risk is likely to remain a theme
for the next month or so," said Justin Urquhart Stewart,
investment director at Seven Investment Management.
U.S. crude oil <CLc1> briefly rose above $121 a barrel, a
day after its biggest rise in 3 months, before trimming gains to
stand 0.3 percent lower on the day.
The pan-European FTSEurofirst 300 index rose 0.5 percent
<> but declines in mining shares offset some gains in
energy stocks, and the MSCI main world equity index
<.MIWD00000PUS> steadied.
Asian stocks <.MIAPJ0000PUS> briefly hit a two-year low as
the rebound in oil reminded investors of inflation risk.
Japan's Nikkei share average <> fell 0.7 percent to its
lowest close in nearly five months, while U.S. stock futures
<SPc1> were unchanged, indicating a steady open on Wall Street.
U.S. Treasuries <US10YT=RR> dipped and September euro zone
government bond futures <FGBLc1> weakened in early trade.
Investors' anxieties about the financial sector also remain
intact.
Freddie Mac <FRE.N>, one of the top U.S. mortgage finance
companies, is talking with private-equity and other investors
about buying some shares but faces fears that a government
bailout would wipe out any investment, The Wall Street Journal
said on Friday.
DOLLAR REBOUNDS
The dollar rose 0.2 percent against the euro to $1.4865
<EUR=> and 0.7 percent to 109.11 yen <JPY=> after suffering on
Thursday from an unwinding of bets following its recent rise to
eight-month highs.
"We're in a period of consolidation. The market is squaring
up a bit as it finds a new trading range," said Paul Mackel,
director of currency strategy at HSBC Markets.
Gold rose to $832.70 an ounce <XAU=>, near Thursday's 1-1/2
week high, bolstered by a retreat in the dollar and the global
geopolitical tensions.
Platinum <XPT=>, palladium <XPD=> and silver <XAG=> also
rose to track gold, which has bounced eight percent from a
nine-month low hit last week, when a surging dollar ignited
heavy selling.
Rising commodity prices helped stabilise emerging markets,
many of which are commodity producers. Sovereign debt spreads
narrowed by 2 basis points to 301 bps over U.S. Treasuries
<11EMJ> and emerging equities rose 0.2 percent <.MSCIEF>,
pulling off recent 1-year lows.
(Additional reporting by Sitaraman Shankar and Naomi
Tajitsu; Editing by Victoria Main)
