* World stocks rise on economy hopes
* Europe recovers after early losses
* Wall Street set for gains
* Dollar weakens
By Jeremy Gaunt, European Investment Correspondent
LONDON, Jan 5 (Reuters) - Optimism about the world economy
buoyed global equities on Tuesday, particularly in emerging
markets, but the dollar continued its weak start to 2010.
European shares recovered from early losses to put in gains
and Wall Street looked set to open higher.
MSCI's all-country world index <.MIWD00000PUS> was up around
0.4 percent around highs last seen in late September 2008. Its
emerging market counterpart <.MSCIEF> gained 1.2 percent.
The FTSEurofirst 300 <> erased early losses to rise
0.2 percent, adding to 1.4 percent on Monday, the first day of
trading for the year.
"People really want to believe in a good 2010 for stocks,
and this sentiment is fuelled by strong macro data and the
return of the M&A fever," said David Thebault, head of
quantitative sales trading, at Global Equities, in Paris.
"We're seeing funds reallocating their assets in favour of
equities, and that is something that will support the rally."
Sentiment has been lifted by relatively positive economic
data. The U.S. manufacturing sector grew at its fastest pace in
nearly four years in December, its fifth consecutive month of
expansion.
Japan's Nikkei <> gained 0.25 percent.
"Investors are seeking more risks thanks to better economic
conditions," said Tsutomu Soma, senior manager of foreign
securities at Okasan Securities in Tokyo.
However, he said the optimism could change if U.S. jobs data
due on Friday disappoints.
"Investors feel they need to have the employment data to
confirm the U.S. economy is improving solidly," Soma said.
DOLLAR DOWN
The dollar slipped against a basket of currencies as hopes
for the global economy encouraged investors to shift into
high-yielding assets.
The dollar index, a gauge of the U.S. currency's performance
against six other major currencies, was down 0.3 percent.
The euro was up 0.2 percent at $1.4443 <EUR=> after
advancing 0.6 percent the previous day.
Against the yen <JPY=>, the dollar was down 1.1 percent at
91.91 yen.
Euro zone government bonds drifted lower with investors
reluctant to take big positions ahead of a busy couple of days
for supply and the key U.S. employment report at the end of the
week.
"There's a general rise in risk appetite and some better
economic signals coming through," said Investec economist David
Page. "Those hopes that we'll start to see a pick-up soon are
what's weighing on bonds at the moment.
(Additional reporting by Kirsten Donovan and Blaise
Robinson; editing by Ron Askew)
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