GLOBAL MARKETS-Citi salvages equity markets, oil up $2

                                
 By Jeremy Gaunt, European Investment Correspondent
                                
 LONDON, July 18 (Reuters) - Better-than-expected earnings at
banking powerhouse Citigroup lifted European shares and set Wall
Street up for a likely positive start on Friday, reversing a
broad swathe of concern about the banking sector.
                                
 The dollar gained and oil was  up some $2 a barrel after a
steep three-day slide.
                                
 Citigroup <C.N> posted smaller-than-expected $2.5 billion
second-quarter loss.
                                
 Bourses had earlier been in a depressed mood following
investment bank Merrill's <MER.N> much larger-than-expected
$4.89 billion quarterly loss, announced after the close in New
York on Thursday.
                                
 Those results fed into investor angst about the continuing
stress on the financial sector from the credit crisis.
                                
 MSCI's main world stock index <.MIWD00000PUS> was down 0.3
percent on the day, but the  pan-European FTSEurofirst 300
<.FTEU3> was up 0.4 percent.
                                
"Citigroup, just because of the spread of their business, is
seen as a barometer of banking sector pretty much as a whole,"
said Martin Slaney, head of derivatives at GFT Global Markets.
                                
 Earlier, Japan's Nikkei stock average <.N225> slipped 0.7
percent for its sixth straight week. It closed down 84.25 points
at 12,803.70. The broader TOPIX <.TOPX> shed 0.9 percent to
1,252.43.
                                
 
                                
 OIL RECOVERS, DOLLAR SLIPS
                                
 Oil prices climbed around $2 a barrel to sit above $131 as
buyers came back into the market after a more than 10 percent
slide since Tuesday.
                                
 Easing tensions between Iran and the West and worries that
high prices and a weaker U.S. economy will undermine demand had
combined to send oil down $15 in just three days.
                                
 U.S. light crude <CLc1> rose $2.06 to $131.26 a barrel,
still well off the record high of $147.27 hit on July 11.
                                
 "The pullback is perceived as an opportunity to buy," said
Gerard Burg of Australia National Bank in Melbourne.
                                
 On foreign exchange markets, the dollar rose slightly
against the euro <EUR=> to $1.5851 and was up a third of a
percent against the yen <JPY=> to 106.61 yen.
                                
 Against a basket of six major currencies <.DXY>, the dollar
was up 0.2 percent at 72.155.
                                
 "There's not really much happening macro-wise," said Daragh
Maher, senior currency strategist at Calyon.
                                
 Euro zone government bonds were mixed.
                                
 Ten-year bond yields <EU10YT=RR> were flat at 4.473 percent
while 2-year yields <EU2YT=RR> were up 1.6 basis points at 4.394
percent.
                                
 (Editing by Victoria Main)