* MSCI world equity index up 0.4 pct at 296.16
* Euro, European stocks keep gains after Greece downgrade
* Dollar, oil firmer; government bonds lower
By Natsuko Waki
LONDON, Dec 22 (Reuters) - World stocks rose for a second
day running on Tuesday and oil also gained on rising
expectations of U.S. economic recovery, which sent U.S. Treasury
yields and the dollar higher.
The euro and European stocks held onto gains after Moody's
delivered a widely anticipated downgrade to Greece's sovereign
rating. The cut was a smaller-than-expected one notch to A2.
The other two major rating agencies had already downgraded
the euro zone member to lower levels earlier this month.
Wall Street rose on Monday, with the Nasdaq hitting a
15-month high, after landmark U.S. healthcare legislation passed
a crucial test for approval and Barclays Capital upgraded giant
chipmaker Intel <INTC.O> to "overweight".
Stronger U.S. job and retail figures this month have
persuaded some -- but not all -- economists to upgrade their
near-term growth forecasts.
U.S. data due on Tuesday includes a final reading of
third-quarter gross domestic product, existing home sales for
November and the Richmond Fed survey for Deember.
Firmer stocks sapped demand for safe-haven U.S. Treasuries,
whose 10-year yield leapt to a four-month high above 3.7 percent
<US10YT=RR>. This in turn supported the dollar, which hit a
two-month high. <JPY=>
"The dollar has strengthened recently with a rise in U.S.
yields relative to those of other major economies reflecting
recent strengthening in their indicators, and that has certainly
helped the dollar turn the corner a bit," said Greg Gibbs,
currency strategist at RBS in Sydney.
MSCI world equity index <.MIWD00000PUS> rose 0.4 percent, on
track to scoring one of the biggest annual gains in the past 20
years.
The FTSEurofirst 300 index <> rose two thirds of a
percent, with banks and drugmakers leading the gains.
Emerging stocks <.MSCIEF> rose half a percent.
U.S. crude oil <CLc1> rose 0.4 percent to $73.99 a barrel
<CLc1> with cold weather in the United States and some parts of
Europe underpinning demand.
Bund futures <FGBLc1> fell 58 ticks. The premium investors
demand to hold 10-year Greek government bonds rather than euro
zone benchmark German Bunds tightened to 266 basis points after
the Moody's downgrade.
At one stage on Monday, Greek 10-year debt <GR10YT=RR>
yielded as much as 285 basis points more than Bunds <EU10YT=RR>,
the widest spread since the first quarter of 2009.
The dollar rose as high as 91.47 yen.
"We saw dollar gain even as stocks post gains. What still
remains unclear is whether we have experienced an inflection
point in the dollar or merely year-end position squaring," RBC
said in a note to clients.
"It remains quite intriguing that though we are seeing a
number of 'risk sensitive' currencies get clobbered, there does
not seem to be much of an elevated aversion to risk across
markets in general."
The dollar <.DXY> was down a quarter percent against a
basket of major currencies while the euro gained 0.3 percent to
$1.4331 <EUR=>.
(Editing by Mike Peacock)
