* MSCI world stocks <.MIWD00000PUS> flat at 293.00
* Euro <EUR=> firmer; dollar <.DXY> retreats from 3-mth high
* Oil <CLc1> up more than $1 to briefly top $74 per barrel
By Sujata Rao and Mike Dolan
LONDON, Dec 18 (Reuters) - The euro stabilised on Friday
after this week's steep losses against the dollar and yen and
rose off nine-month lows versus the Swiss franc while higher oil
prices helped European stocks higher in thin year-end trade.
Rumours of a coup in Pakistan had sent the safe-haven Swiss
franc surging in early dealing but it slipped after the reports
were denied, with dealers saying the currency was also pressured
by expectations of intervention by the Swiss National Bank.
Markets calmed after Pakistani President Asif Ali Zardari
said there was no coup, dousing rumours that started after a
government minister suspected of corruption was barred from
leaving the country. []
But geopolitical concerns continued to jangle nerves later
in the session and the dollar recovered ground after reports
that Iranian troops briefly entered Iraqi territory on Thursday
and spent several hours at an Iraqi oilfield.
The dollar, which had surged on Thursday to a three-month
high against a basket of currencies <.DXY>, had earlier been
knocked back against the euro by a higher-than-expected reading
from German Ifo Institute's sentiment index for December.
"The markets are fairly illiquid which is exaggerating
moves," said Lee Hardman, currency economist at Bank of
Tokyo-Mitsubishi UFG.
The euro rose briefly 0.4 percent top $1.44 <EUR=> after
falling close to $1.4300 on Thursday, the lowest since early
September. But it slipped back to $1.4350 later.
It has been under pressure due to fiscal problems in euro
zone member Greece which has been hit by two ratings downgrades
this month -- the latest on Thursday by Standard & Poor's.
OIL HELPS STOCKS
Crude oil rose 0.8 percent <CLc1> to $73.41 a barrel,
underpinned by the geopolitical anxiety, signs of a recovery in
U.S. demand and the prospect of increased winter demand.
European stocks rose as those stronger oil prices pushed up
energy stocks and offset weakness in financials.
The FTSEurofirst 300 <>, the index of top European
shares was up 0.2 percent after losing 1.3 percent on Thursday.
Oil firms led the gains with Total <TOTF.PA>, BP <BP.L>, BG
<BG.L>, Royal Dutch Shell <RDSa.AS> and StatoilHydro <STL.OL>
rose between 0.7 and 2 percent.
Banking shares however continued to decline.
"When there's a sell-off, it seems there are investors
coming back in there, though volumes are lower," said Mike
Lenhoff, strategist at Brewin Dolphin, in London.
"Fourth-quarter earnings should be good, and show top-line
growth, and that could be what's helping to keep the market up."
World stocks <.MIWD00000PUS> were flat on the day, after
Thursday's retreat and despite an early bounce. The index has
risen nearly 29 percent this year, on track for one of the
biggest gains in the past 20 years.
"Most of the people are getting cautious. Everybody is
closing books. They say 'OK we had a great year so why do we
have to risk more?'," said Koen de Leus, economist at KBC
Securities.
"We are at the end of the year so volumes are not going to
be very high."
Asian shares <.MIAPJ0000PUS> fell half a percent as Chinese
and Hong Kong bourses hit three-week closing lows on tough new
government regulations on the real estate and banking sectors.
Emerging equities <.MSCIEF> lost 0.3 percent. The index has
gained about 70 percent this year.
U.S. stocks are expected to open on a firmer note with
futures for the Dow Jones average <DJc2>, S&P 500 <.SPc1> and
the Nasdaq Composite up 0.3-0.7 percent. []
In bond markets, 10-year Bund yields <EU10YT=RR> were
slightly lower at 3.126 percent, with analysts expecting the
futures contract to hold its recent gains, fuelled by the
worries in Greece.
But the sell-off in Greek and other peripheral euro zone
bonds continued, pushing the premium on 10-year Greek yields
over benchmark Bunds back up by more than 10 basis points to 270
bps -- near levels hit on Thursday after the S&P ratings
downgrade. [].
"We saw this morning Greece again under limited pressure
with the spreads widening moderately. We continue to see the
demand for safety driving the market. This offers core debt
markets some support," said Patrick Jacq, a rates strategist at
BNP Paribas in London.
"We are going into end of year where people are probably
looking for less risk positioning, so that offers the market
some support as well."
(Reporting by Sujata Rao, Brian Gorman, Tamawa Desai, Emelia
Sithole-Matarise, editing by Mike Peacock and Toby Chopra)
