* 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) - European stocks and oil prices
turned lower on Tuesday after China raised interest rates for
the second time in just over a month, intensifying its fight
against inflation.
The commodity-sensitive Australian dollar also fell but
world stocks still held near the previous day's 29-month high as
China's monetary tightening did little to immediately change the
favourable outlook for global growth this year.
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, while China's
latest move is seen as proactively tackling inflation problems.
"It is a clear concern of the markets that a tightening in
policy in China will have a dampening effect on demand growth,
but probably what more you're seeing here is a knee-jerk
reaction to the initial news," said Gayle Berry, analyst at
Barclays Capital.
"A lot of people were anticipating some sort of big news
over the holiday period, so I wouldn't say it's come entirely as
a surprise to everyone in the market."
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> was
still up around 0.1 percent.
The FTSEurofirst 300 index <> was down 0.3 percent,
turning negative after China's move.
U.S. stock futures <SPc1> were steady on the day. 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. [] []
Emerging stocks <.MSCIEF> were down 0.15 percent on the day.
China is closed for the Lunar New Year holidays.
From Feb 9, China's benchmark one-year deposit rates will be
lifted by 25 basis points to 3 percent, while one-year lending
rates will also be raised by 25 basis points to 6.06 percent.
U.S. crude oil <CLc1> fell 1.2 percent to $86.38 a barrel.
German government bond futures <FGBLc1> were steady on the day.
RATE MOVES EYED
The Australian dollar <AUD=D4> fell around 40 pips to
$1.0143 from around $1.0180 before the Chinese move as
commodities like copper and gold also turned softer.
In the broader currency market however, the focus was on
U.S. and euro zone monetary policies. The euro recovered on
Tuesday, having been under pressure after last week's comments
from European Central Bank President Jean-Claude Trichet cooled
expectations on the pace of monetary tightening.
The euro <EUR=> rose 0.4 percent to $1.3637 <EUR=> while the
dollar <.DXY> fell 0.3 percent against a basket of major
currencies while
"Our risk-adjusted yield differential indicator has given a
fresh euro/dollar sell signal over the past couple of days and
we look to use any initial corrective rebound today to establish
bearish strategies," BNP Paribas said in a note to clients.
Last week's unexpected fall in the U.S. jobless rate also
sparked a rise in U.S. debt yields. 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 Stephen Nisbet)
