GLOBAL MARKETS-World stocks rally; oil gains on Israel warning

                                
  
                                
 * World stocks gain on earnings optimism
                                
 * Israel warning to Iran stokes oil, Swiss franc
                                
 * Sterling falls sharply after BoE inflation report
 (Updates MSCI hitting 30-month highs, adds details, updates
prices)
                                
 By Wanfeng Zhou
                                
 NEW YORK, Feb 16 (Reuters) - Major stock markets rallied to
fresh 30-month highs on Wednesday on strong corporate earnings,
while oil and the Swiss franc gained after Israel said a move
by Iranian warships to traverse the Suez Canal was a
"provocation".
                                
 The comments by Israel's foreign minister, together with
reports of political protests in Iran, Yemen and Bahrain,
raised worries unrest in the Middle East could disrupt oil
supplies. See [ID:nN16REASUR] and [ID:nLDE71F0T5]
                                
 U.S. stocks rose after estimate-beating results from
technology bellwether Dell Inc. <DELL.O> and a deal for
Sanofi-Aventis <SASY.PA> to buy Genzyme <GENZ.O> for $20.1
billion in cash.
                                
 The euro gained versus the dollar <EUR=EBS> on the news
from Israel. The save-haven Swiss reached a session high versus
the dollar <CHF=EBS>. Traders said the dollar was being sold on
the view that this could be a security threat for Israel.
                                
 "The dollar is being sold off against the Swiss franc and
the euro because, should there be a conflict with Israel, this
would be bad for the U.S. as well, " said Brian Dolan, chief
currency strategist at Forex.com in Bedminster, New Jersey.
                                
 The MSCI world equity index <.MIWD00000PUS> rose 0.6
percent to 345.04, after hitting its strongest since August
2008.
                                
 Sterling tumbled against the euro and dollar after the Bank
of England downgraded its economic outlook in its quarterly
inflation report, even as consumer prices spiked higher. That
stoked fears of stagflation.
                                
 "The key guidance being that any tightening ahead is likely
to prove modest with potentially only 0.50 point of tightening
in 2011," said Lee Hardman, currency economist at Bank of
Tokyo-Mitsubishi UFL. "Such guidance has disappointed current
market expectations which had moved to discount even more
aggressive tightening ahead."
                                
  European share prices also edged higher, supported by
strong earnings from French bank Societe Generale <SOGN.PA> and
brewer Heineken <HEIN.AS>, The pan-European FTSEurofirst 300
<.FTEU3> index was last up 0.6 percent.
                                
 The gains followed an earlier jump in Japan's Nikkei
average <.N225> to a nine-month high, helped by a weaker yen
and buying by foreign investors.
                                
 "There is a growing confidence in the outlook for the
global economy. The recovery looks like it is being transformed
into a sustainable expansion and that does mean that the
outlook for earnings is very positive," said Mike Lenhoff,
chief strategist at Brewin Dolphin.
                                
 The Dow Jones industrial average <.DJI> was last up 71.56
points, or 0.59 percent, at 12,298.97. The Standard & Poor's
500 Index <.SPX> rose 8.68 points, or 0.65 percent, to
1,336.70. The Nasdaq Composite Index <.IXIC> gained 20.87
points, or 0.74 percent, to 2,825.14.
                                
 OIL GAINS
                                
 Brent crude <LCOc1> for April delivery rose by $1.16 to
$102.80 a barrel, hovering below a 28-month peak of $104.30 on
Monday.
                                
 U.S. crude <CLc1> for March delivery climbed 47 cents to
$84.80 a barrel, extending gains after a government report
showed crude oil and gasoline stockpiles rose less than
expected last week.
                                
 A rare show of unrest in Libya added to fears the kind of
unrest that toppled the presidents of Egypt and Tunisia could
spread to oil-producing countries in the Middle East.
                                
 "This morning troubles in the Middle East are back on the
agenda, protests in Bahrain and Saudi have drummed up political
tension," said Rob Montefusco, an oil trader at Sucden
Financial.
                                
 The dollar rose to its strongest level against the yen in
more than two weeks <JPY=EBS> as U.S. Treasury yields rose on
fears of rising inflation.
                                
 U.S. core producer prices in January rose to their highest
rate in more than two years, hinting at a build up in inflation
pressures as the recovery gathers pace, a potentially troubling
development for the Federal Reserve. [ID:nN16ST1]
                                
(To see an analysis on market inflation expectations click
on, [ID:nN15149987])
                                
 Emerging stocks <.MSCIEF> were up 0.4 percent.
 (Additional reporting by Jessica Mortimer and Jessica Donati
in London; Editing by Andrew Hay)