* MSCI world equity index up 0.1 percent at 343.52
* Europe, Asia hold below recent highs
* Dollar down; oil slightly firmer
By Natsuko Waki
LONDON, Feb 8 (Reuters) - The rally in shares and other
riskier assets took a breather on Tuesday, with world stocks
trading a touch below the previous day's 29-month highs while
the dollar fell broadly.
Benchmark U.S. equity indexes hit 2-1/2 year highs on
Monday, with news of multi-billion-dollar mergers reinforcing
expectations that cash-rich companies are confident enough about
the economy to buy up undervalued rivals. []
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Recent strong manufacturing and services sector surveys
around the world and a fall in the U.S. unemployment rate point
to sustained momentum in the global recovery.
But in Europe, where the benchmark index hit 29-month peaks
on Monday, investors paused to consolidate their positions.
The MSCI world equity index <.MIWD00000PUS> was up 0.15
percent, having hit its highest level since August 2008 on
Monday. The Thomson Reuters global stock index <.TRXFLDGLPU>
also rose around 0.1 percent.
The FTSEurofirst 300 index <> was down 0.3 percent.
"Any hesitation at current levels and the market will likely
retreat, taking a little steam out of the current rally and
forcing traders to rethink their long positions," said Enis
Mehmet, analyst at Autochartist.
About 72 percent of S&P 500 companies that have reported
results so far have posted stronger-than-expected earnings,
according to Thomson Reuters data.
Investors expect aggregate earnings rose 37 percent in the
last quarter, the highest estimate for that period in more than
10 months.
Emerging stocks <.MSCIEF> were down slightly on the day.
China is closed for the Lunar New Year holidays.
U.S. crude oil <CLc1> rose 0.2 percent to $87.66 a barrel.
German government bond futures <FGBLc1> were up 20 ticks.
RATE PLAY
The dollar <.DXY> -- which has suffered against the euro
because of expectations euro zone interest rates will rise
sooner -- fell 0.3 percent against a basket of major currencies
while the euro <EUR=> rose 0.4 percent to $1.3645 <EUR=>.
European Central Bank policymaker Yves Mersch said late on
Monday the bank could raise interest rates to contain inflation
before it withdrew measures to support banking liquidity,
although poor German data spoke against an early rise.
"I think the euro will be supported but it will need a dose
of hawkishness from the European Central Bank to rise," said
Koji Fukaya, chief FX strategist at Credit Suisse in Tokyo.
The euro fell back from a 12-week high of $1.3862 last week
after ECB President Jean-Claude Trichet failed to escalate the
ECB's recently sharper tone on inflation, cooling market
expectations on the pace of monetary tightening.
That was followed by an unexpected fall in the U.S. jobless
rate, which sparked a rise in U.S. debt yields, further helping
the dollar against the euro.
The 10-year U.S. yield <US10YT=RR> broke above a trading
range that had been in place since early December and U.S. money
markets have started to price in some chance of a U.S. rate hike
later this year.
Still, investors are reluctant to buy the dollar
aggressively after Federal Reserve Chairman Ben Bernanke said
last week that the U.S. economy still needs the Fed's help -- a
stance many traders expect him to repeat when he speaks on
Wednesday.
(Editing by Patrick Graham)
