* MSCI world equity index up 1.3 pct
* Banks lead the way
* Oil hits 6-month peak above $60/bbl; dollar falls
* German sentiment survey jumps
By Natsuko Waki
LONDON, May 19 (Reuters) - World stocks rose for a third day
running on Tuesday with banking stocks leading gains in Europe
while oil hit a six-month peak as expectations grew the the
global economy and the financial sector are past the worst.
A closely-watched ZEW survey showed German analyst and
investor sentiment rose to its highest level in nearly three
years, underscoring various surveys showing improvement in
investor morale. []
That report, and rising shares, bolstered the euro.
Last week's pullback in the benchmark MSCI world equity
index <.MIWD00000PUS>, coming after nine weeks of uninterrupted
gains, has proved short-lived, allowing investors to add risks
back onto their portfolio gradually.
By 1130 GMT, the MSCI index was up 1.3 percent at a one-week
high. The FTSEurofirst 300 index <> rose a similar amount
and emerging stocks <.MSCIEF> climbed 2.2 percent.
"There's a feeling that the rally has a bit more to run,
there's been no economic data to give pause for thought and
investors are looking to get in at lower levels after last
week's stumble," said Peter Dixon, economist at Commerzbank.
Banking shares <SX7P> were among the biggest risers.
Sources on Monday said major U.S. banks may soon repay
government bailout funds and a source familiar with the matter
said Britain had held talks with investors to gauge their
interest in buying its stakes in part-nationalised banks.
But a UK government source later said it was too early to
talk about the British government selling its stakes in Royal
Bank of Scotland <RBS.L> and Lloyds Banking Group <LLOY.L> and
that it would only be considered seriously "when the conditions
are right". []
"There's a sense that the worst is over for the financial
sector and (the potential sale of stakes in UK banks) is adding
fuel to the fire," Dixon said.
The euro rose 0.6 percent to $1.3637 <EUR=> after the ZEW
survey.
The dollar <.DXY> fell 0.5 percent against a basket of major
currencies. The yen was steady at 96.28 per dollar <JPY=>.
"Being positive on an eventual recovery does not mean having
to put a lot of capital at risk today," said Chris Iggo, chief
investment officer of fixed income at AXA Investment Managers.
"However, I believe that the judicial use of risk will
eventually deliver."
IMPROVING RISK SENTIMENT
U.S. stock futures were up around 0.5 percent <SPc1>,
pointing to a firmer open on Wall Street.
Wall Street rallied on Monday after No. 2 U.S. homebuilder
Lowe's <LOW.N> raised its full-year forecast due to signs that
the housing market's decline may be ebbing.
Home Depot Inc <HD.N>, reported a higher-than-expected
quarterly profit on Tuesday as the world's largest home
improvement chain reined in expenses. []
U.S. building permits and housing starts data due later,
should shed light on how the housing market -- the epicentre of
the almost two-year credit crisis -- is faring.
U.S. banks rallied on Monday after sources familiar with the
situation said Goldman Sachs <GS.N>, Morgan Stanley <MS.N> and
others had applied to repay building of dollars they borrowed
under the U.S. government's Troubled Asset Relief Program.
[]
State Street <STT.N> also said it was selling $2 billion of
stock and will sell notes to help repay government bailout
funds.
Wall Street's fear gauge, the VIX index <.VIX>, fell to as
low as 30 on Monday, its lowest since the week after Lehman
Brothers filed for bankruptcy.
Oil rose to a new six-month high above $60 a barrel as
unrest in key producer Nigeria and a U.S. refinery outage
kindled concerns over oil fundamentals after weeks of equity-led
rallies.
Oil prices have risen from a near five-year low of $32.40
touched in December, tracking gains in stock markets over the
last few months as investors looked to equities for signs of
recovery in the economy and ailing oil demand.
The June Bund future <FGBLc1> fell 73 ticks, coming under
pressure from buoyant global stock markets while heavy
government and corporate bond issuance this week also weighed.
(Additional reporting by Simon Falush and Naomi Tajitsu,
editing by Mike Peacock)
