* Stocks, commodities rebound from Monday's sharp losses
* Germany ZEW index rises more than expected in August
* Euro gains against dollar, yen after ZEW
By Dominic Lau
LONDON, Aug 18 (Reuters) - World stocks and commodity prices
recovered on Tuesday from the previous session's sell-off, which
was prompted by concerns over the pace of global recovery, while
the Japanese yen and safe-haven U.S. government bonds eased.
U.S. stocks suffered their worst loss in seven weeks on
Monday while Chinese shares saw their biggest daily percentage
drop in nine months.
The Shanghai Composite Index <> ended 1.4 percent
higher on Tuesday, reversing earlier losses after dipping to a
two-month low in intraday trade. Japan's Nikkei average <>
also closed up.
U.S. stock index futures <SPc1> <DJc1> <NDc1> rose 0.6-0.7
percent, pointing to a stronger start on Wall Street, as
investors braced for data on new housing starts.
The drop in China's market had a domino effect on other
markets on Monday, fuelling worries among some analysts that
rallying assets prices have run too far ahead of economic
fundamentals and weak earnings prospects.
"Most economies appear to have exited recession, thanks to a
turn in the inventory cycle and huge policy stimulus," Barclays
Wealth said in a note.
"However, a sustained recovery will require greater spending
from households and corporations. For this to occur, greater
confidence among lenders and borrowers will be necessary."
The pan-European FTSEurofirst 300 <> index, which
tumbled 45 percent last year, has rallied nearly 44 percent from
its March floor and is up more than 11 percent this year.
The index rose 1 percent on Tuesday, boosted by a survey
which showed a bigger-than-expected improvement in Germany
investor sentiment.
GERMAN SENTIMENT IMPROVES
The ZEW economic research institute's economic sentiment
index for Germany rose to 56.1 in August from 39.5 in July,
taking the indicator to its highest level since April 2006.
"We have passed the low point of the crisis. We are at the
start of a recovery which will, however, turn out to be rather
bumpy and weak," said Joerg Lueschow at WestLB.
"The economy might grow more strongly in the third quarter
than in the spring. But in the fourth quarter, momentum might
flag again, as increasing unemployment puts a dampener on
consumption."
Nokia's <NOK1V.HE> Chief Executive Olli-Pekka Kallasvuo also
said he expected a slow, gradual recovery in the world economy.
The MSCI world equity index <.MIWD00000PUS> advanced 0.3
percent after losing nearly 3 percent on Monday -- its biggest
one-day percentage loss in four months.
The euro gained against the dollar and the yen, lifted by
the ZEW data. The euro <EUR=> was up 0.3 percent at $1.4119.
Against the yen, the euro rose 1 percent to 134.26 yen
<EURJPY=R>.
The VDAX-NEW volatility index <.V1XI>, a gauge of investor
risk aversion in Europe, fell 3.4 percent, after soaring 14
percent to hit its highest close in five weeks on Monday.
The higher the volatility index, the lower is investors'
appetite for risky assets such as equities.
Crude prices <CLc1> rose above $67 a barrel and copper
prices <MCU3> gained 1.4 percent as investors regained a bit of
risk appetite.
Yields on benchmark 10-year U.S. Treasuries <US10YT=RR> were
up 4 basis points at 3.507 percent, while the 10-year euro zone
<EU10YT=RR> Bund yield was up 1 basis point at 3.308 percent.
(Additional reporting by Berlin newsroom, editing by Mike
Peacock)
