* MSCI world equity index up 0.2 percent at 331.40
* Rebound in oil and commodities helps European stocks
* Dollar rises towards 7-month peak
By Natsuko Waki
LONDON, Aug 20 (Reuters) - Oil and commodities rebounded on
Wednesday, helping world stocks climb after hitting their lowest
level in almost two years the previous day, while the dollar
rose close to this week's seven-month high.
Rising resource stocks helped European shares 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.
Oil rose above $115 a barrel -- after sliding more than $30
from its July record peak -- while gold rose above last week's
nine-month low, driven by strong demand.
"We have seen really heavy demand over the last two weeks on
the physical side," said Michael Kempinski, senior trader at
Commerzbank, referring to gold. "The bounce-back is on the back
of this high physical demand."
U.S. light crude <CLc1> rose 0.5 percent to $115.17 a
barrel. Gold <XAU=> rose to $812.80 an ounce.
The FTSEurofirst 300 index <> rose 0.3 percent while
the MSCI main world equity index <.MIWD00000PUS> gained a
quarter percent, edging away from the previous day's low.
Helping sentiment, 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 hunters have returned to the market on talks that a
rescue package is on the way," said Francis Lun, general manager
of Fulbright Securities in Hong Kong.
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.
FIRMER US
U.S. stock futures <SPc1> were up around a third of a
percent, indicating a firmer start on Wall Street later.
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 shrugged 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> were unchanged while
emerging stocks <.MSCIEF> rose more than 1 percent, edging
higher from the previous day's one-year low.
The September Bund future <FGBLU8> rose 20 ticks, driven by
rising British government bonds which found support after a
survey showing a weak order book balance in UK manufacturing.
