* MSCI world equity index up 0.3 percent at 331.40
* Late surge in Chinese stocks, rebounding commodities help
* Dollar rises towards 7-month peak
By Natsuko Waki
LONDON, Aug 20 (Reuters) - World stocks edged higher on
Wednesday after the previous day's tumble to their lowest level
in almost two years attracted some buyers, while rebounding
commodity prices helped resource shares.
The dollar rose towards the previous day's seven-month high
against a basket of six major currencies, helped by expectations
that growth outside the United States is deteriorating fast.
Asian and European stocks managed to defy Tuesday's fall on
Wall Street, where fears over the future of top U.S. mortgage
firms Fannie Mae <FNM.N> and Freddie Mac <FRE.N> and dismal
housing data dragged financial firms lower.
Helping sentiment on Wednesday, Chinese shares <> rose
as much as 7.6 percent thanks to speculation the government
would introduce a stimulus package to boost the slowing economy.
"Bargain hungers have returned to the market on talks that a
rescue package is on the way," said Francis Lun, general manager
from Fulbright Securities in Hong Kong.
The FTSEurofirst 300 index <> rose half a percent
while the MSCI main world equity index <.MIWD00000PUS> gained a
third percent, edging away from the previous day's low.
China must increase domestic spending to keep growth on
track as the global economy weakens, Vice-Premier Li Keqiang
said on Wednesday, identifying a need to increase household
incomes and rural consumption.
DOLLAR UNDERPINNED
On Tuesday, U.S. stocks fell across the board on fears that
U.S. mortgage firms may need a government bailout and a
prediction that Lehman Brothers <LEH.N> would suffer a further
$4 billion in write-downs. Data also showed U.S. housing starts
fell in July to their lowest annual rate in more than 17 years.
The dollar managed to shrug off negative news flow, rising
0.2 percent against a basket of major currencies <.DXY>, after
hitting its highest level this year on Tuesday.
Investors have been focusing on recent data showing growth
in Japan and the euro zone contracted in the second quarter,
moving half way into recession. U.S. growth was positive in the
same period.
"Incremental risk to global growth from weakening growth
data from Europe will continue to put a floor on the dollar,"
UBS said in a note to clients.
Emerging sovereign spreads <11EMJ> tightened 2 basis points
while emerging stocks <.MSCIEF> rose more than 1 percent, also
edging higher from the previous day's one-year low.
The September Bund future <FGBLU8> fell 20 ticks as
safe-haven demand waned as risky assets gained.
U.S. light crude <CLc1> rose 0.3 percent to $114.95 a barrel
-- still staying more than $30 below the July record peak.
Gold <XAU=> rose to $811.50 an ounce.
(Editing by Mike Peacock)
