* MSCI world equity index up 0.1 percent at 270.16
* Euro zone services, manufacturing PMI better than expected
* Euro firmer; government bonds fall
By Natsuko Waki
LONDON, Aug 21 (Reuters) - World stocks ticked higher and
the euro hit its highest in nearly one month against sterling on
Friday after the euro zone manufacturing and services survey
showed significantly bigger improvement than expected.
The survey by Markit showed the decline in the euro zone's
dominant services sector almost came to a halt in August and
businesses' expectations for the future soared to their highest
level in more than two years.
Manufacturing activity contracted at a far slower pace than
expected and output rose for the first time in 15 months. In the
Germany survey, its composite index rose above 50, indicating
the private sector surged back to growth in August.
"We think PMI, especially moves above 50, is very positive.
In that context equities should have a bit of a boost. This
should support pro-risk trade and pro-risk currencies... the
euro as well," said Naeem Wahid, strategist at Bank of Scotland
Treasury.
MSCI world equity index <.MIWD00000PUS> was up 0.1 percent
while the FTSEurofirst 300 index <> gained 0.2 percent.
Emerging stocks <.MSCIEF> were steady. Chinese stocks
<> rose 1.7 percent, led by banks after strong earnings
reports, although they posted their third weekly loss in a row.
"The most decisive thing now is the Chinese stock market and
as long as the Chinese market holds up, the risky assets will
hold as well," said Koen De Leus, economist at KBC Securities.
Fears about liquidity in China this week drove outflows from
global emerging market stocks to the highest of the year, with
investors shifting to bonds instead, according to fund tracker
EPFR Global.
Global emerging markets equity funds saw $946 million flow
out the door in the third week of August, with the lion's share
of $810 million redeemed from Asia ex-Japan stock funds. China
equity funds had their worst week since early in the first
quarter of 2008.
Global bond funds tracked by EPFR, coming off a record month
of inflows in July, took in a net $954 million in fresh money
this week.
EURO HIGHER
The euro rose to 86.67 pence <EURGBP=>, its highest in
nearly one month.
The low-yielding dollar <.DXY> fell 0.2 percent against a
basket of major currencies as investors bought into riskier
currencies.
However, concerns about volatility in Chinese stocks
prompted the yen, also low-yielding, to a one-month high of
93.49 per dollar <JPY=>.
Sources said earlier this month that China's banking
regulator, concerned record lending could lead to a spike in bad
loans, may tighten banks' capital rules by excluding
subordinated bonds they sell to other banks from their capital
base. A similar report on Friday re-focused attention on this
issue.
U.S. crude oil <CLc1> was steady at $72.91 a barrel.
The September bund futures <FGBLc1> fell 10 ticks.
(Additional reporting by Atul Prakash; Editing by Jon Boyle)
