* MSCI world equity index up 0.56 percent at 349.90
* Oil's sharp fall, better earnings from some firms help
* Dollar hits 1-1/2 week high vs majors
By Natsuko Waki
LONDON, July 23 (Reuters) - World stocks hit a three-week
high on Wednesday as a firmer dollar and concerns about slowing
energy demand knocked oil prices still lower after the steepest
fall in history from July's record highs.
The dollar hit a 1-1/2 week peak against a basket of major
currencies, weighing on oil prices, after a top Fed official
said rising inflation could force the central bank to start
raising interest rates sooner rather than later.
U.S. crude is now down more than $20 after hitting a record
above $147 a barrel and fanning inflation concerns. Wednesday's
decline comes after prices suffered their steepest loss in
dollar terms last week since futures began trading in New York
in 1983.
"We can start to think about inflation pressure easing,"
said Philip Isherwood, strategist at Dresdner Kleinwort.
"It starts to take some of the pressure off central banks
and (let) them think more about economic weakness than about
inflation expectations."
The FTSEurofirst 300 index <> was up 1.6 percent,
while the MSCI main world equity index <.MIWD00000PUS> gained
0.4 percent, rising for six days in a row.
Banks were top gainers, with HBOS <HBOS.L> soaring 11
percent on market talk of bid interest from Spanish rival BBVA
<BBVA.MC>.
Also helping sentiment, second-quarter corporate results
from both sides of the Atlantic are proving to be not as
disastrous as some had expected.
Internet company Yahoo <YHOO.O> reported adjusted profit in
line with the forecast, while construction and mining equipment
firm Caterpillar <CAT.N> and Swiss bank Julius Baer <BAER.VX>
posted better-than-expected results.
RISING RATES
Philadelphia Fed President Charles Plosser, one of the Fed's
staunchest inflation hawks, said rate rises could happen even
before labour and financial markets recover, adding that keeping
monetary policy too loose for too long could worsen the
inflation problem.
"Though inflation is a shared concern, Plosser, a known
hawk, is still in the minority among his peers as others want to
see the credit crisis resolved first, and raising rates is not
viable under such a priority," said Masafumi Yamamoto, head of
foreign exchange strategy for Japan at Royal Bank of Scotland.
Interest rate futures <FEDWATCH> show that investors are
expecting the U.S. central bank to raise the benchmark cost of
borrowing by a quarter percentage point by October from the
current 2.0 percent.
Against the yen, the dollar hit a one-month high of 107.90
<JPY=>. Emerging sovereign spreads <11EMJ> tightened 6 basis
points while emerging stocks <.MSCIEF> were up 1.7 percent.
The September Bund future <FGBLU8> fell 20 ticks as
safe-haven demand waned in the face of firmer stocks and other
risky assets.
U.S. light crude <CLc1> was down 1.6 percent at $126.39 a
barrel after concerns eased that Hurrican Dolly would hit Gulf
of Mexico crude supply. Gold <XAU=> tracked oil lower to $938.00
an ounce.
(Additional reporting by Blaise Robinson; Editing by Victoria
Main)
