* MSCI world equity index up 0.7 pct at 193.55
* Citi relief, RBS expectations ease risk aversion
* Yen falls sharply; government bonds weaker
By Natsuko Waki
LONDON, Feb 23 (Reuters) - World stocks rose from last
week's three-month lows and government bonds fell on Monday as
expectations grew that the U.S. government will increase its
stake in Citigroup <C.N>, instead of fully nationalising it.
The low-yielding yen was the biggest loser in the currency
market as global stocks rose and after the failure of domestic
moneylender SFCG <8597.T> added concerns about the world's
second largest economy which is mired in recession.
A source told Reuters that Citigroup is in talks that could
result in the U.S. government increasing its stake in the bank.
(For details please double click on [])
The Wall Street Journal said the government could own as
much as 40 percent of the bank's common equity by converting
preferred shares it holds into common stocks. The plan would not
cost further taxpayer money. The government currently owns a
stake of nearly 8 percent.
The news calmed fears over the bank's future and the
prospect of a full nationalisation of the stricken lender, which
not only depresses stocks but adds to the fiscal burden of the
biggest world economy.
Shares in Britain's partly-nationalised Royal Bank of
Scotland <RBS.L> jumped nearly 20 percent as it is expected to
announce a restructuring to create a non-core division into
which unwanted assets will be placed.
"Banks remain in focus, they are pivotal in terms of the
market," said Jeremy Batstone-Carr, analyst at Charles Stanley.
"Efforts to ring-fence toxic assets at RBS and the fact there
appears to be no all-out nationalisation of Citi is steadying
the ship."
MSCI world equity index <.MIWD00000PUS> rose 0.7 percent
after hitting its lowest since late November on Friday while the
FTSEurofirst 300 index of leading European shares <>
gained 0.4 percent.
U.S. stock futures were up around 1 percent <SPc1>, pointing
to a firmer open on Wall Street later. Citi shares rose more
than 12 percent in premarket trade.
"Global equities are in a bottoming process that began
following the cathartic sell-off in early October," Tristan
Hanson, manager of asset allocation and strategy at Jersey-based
Ashburton, said in a note to clients.
"The basing pattern may continue for some months yet, but
the combination of improving valuations and pervasive pessimism
at a time of unprecedented policy stimulus makes the risk-reward
trade-off of owning equities more attractive at current levels."
Emerging stocks <.MSCIEF> rose 2 percent and U.S. crude oil
<CLc1> rose 1 percent to $40.44 a barrel. The March bund futures
<FGBLc1> fell 45 ticks.
YEN UNDER PRESSURE
The yen hit a three-month low of 94.94 per dollar <JPY=>,
bringing its losses this month to around 5 percent.
SFGC, a lender to smaller companies, failed with debts of
$3.6 billion as tightening credit hits businesses throughout the
economy, sending shares of other non-bank lenders sharply lower.
The Japanese currency has been under pressure and its
perceived safe-haven status is weakening as the domestic economy
deteriorates rapidly.
Uncertainty is intensifying over the country's political
climate after the resignation of Shoichi Nakagawa as the finance
minister this month led to a sharp decline in the approval
rating of Prime Minister Taro Aso.
The dollar <.DXY> ticked lower against a basket of major
currencies while the euro fell to $1.2827 <EUR=>.
(Additional reporting by Simon Falush; Editing by Ron Askew)
