GLOBAL MARKETS-World stocks, oil prices rally

                                
  
                                
 * World stocks gain on earnings optimism
                                
 * Israel warning to Iran stokes oil, Swiss franc rally
                                
 * Sterling falls after BoE inflation report
 (Updates prices, adds details, comment)
                                
 By Wanfeng Zhou
                                
 NEW YORK, Feb 16 (Reuters) - World stocks reached 30-month
highs on Wednesday on strong corporate earnings, while oil and
the Swiss franc rallied 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
anti-government protests in Libya, Yemen, Bahrain and Iran,
raised concern Middle East tensions could disrupt oil supplies.
For details, see [ID:nLDE71F2AV] [ID:nLDE71F0T5]
                                
 The MSCI world equity index <.MIWD00000PUS> rose 0.7
percent to 345.48, after hitting its strongest since August
2008.
                                
 Brent crude surged to near 2-1/2 years highs above $104 a
barrel <LCOc1>. U.S. crude <CLc1> for March delivery climbed as
high as $85.95 a barrel, extending gains after crude oil and
gasoline stockpiles rose less than expected last week.
                                
 "The Iran story is certainly escalating the geopolitical
risk," said Greg Salvaggio, senior vice president of capital
markets at Tempus Consulting in Washington.
                                
 Wall Street advanced, with the S&P 500 closing at twice its
value from just two years ago, a bounce whose vigor has not
been seen since the Great Depression. Stocks were boosted by
Dell Inc. <DELL.O> earnings and a flurry of deal news.
                                
 The Dow Jones industrial average <.DJI> was up 61.53
points, or 0.50 percent, at 12,288.17. The Standard & Poor's
500 Index <.SPX> gained 8.31 points, or 0.63 percent, to
1,336.32. The Nasdaq Composite Index <.IXIC> rose 21.21 points,
or 0.76 percent, to 2,825.56.
                                
 "It seems that there's just a lot of pent-up demand, and
the market is very quick to shrug off news that could appear
negative," said Angel Mata, managing director of listed equity
trading at Stifel Nicolaus in Baltimore.
                                
 European shares <.FTEU3> posted a 29-month closing high for
the third straight day, supported by strong earnings from
French bank Societe Generale <SOGN.PA> and brewer Heineken
<HEIN.AS>.
                                
 The gains followed an earlier jump in Japan's Nikkei
average <.N225> to a nine-month high. Emerging stocks <.MSCIEF>
were up 0.5 percent.
                                
 SAFE-HAVEN FRANC
                                
 The U.S. dollar fell more than 1 percent to a session low
of 0.9554 Swiss franc <CHF=EBS> on trading platform EBS on
tensions between Israel and Iran. The franc is often seen as a
safe-haven in times of geopolitical turmoil. The euro slipped
0.2 percent versus the franc <EURCHF=EBS>.
                                
 The dollar also fell versus the euro <EUR=EBS> on the news
from Israel. Traders said the dollar was being sold on the view
that this could be a security threat for Israel.
                                
 "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.
                                
 Douglas Borthwick, managing director at FX execution firm
Faros Trading, said the market's reaction provided further
confirmation the greenback is losing its flight to quality
status.
                                
 "The market moved into the euro rather than the U.S.
dollar, showing the euro is now the flight to quality
destination," he said.
                                
 Sterling fell <GBP=D4> after the Bank of England downgraded
its economic outlook in its quarterly inflation report, even as
consumer prices spiked higher, stoking fears of stagflation and
dampened expectations UK interest rates would rise sooner
rather than later.
                                
 "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.
                                
 Inflationary pressures may also be building up in the
United States, a potentially troubling development for the
Federal Reserve. Data on Wednesday showed U.S. core producer
prices in January rose to their highest rate in more than two
years. See [ID:nN16ST1]
                                
 Fears of rising inflation pushed Treasury debt prices
lower. Benchmark 10-year Treasury yields <US10YT=RR> were at
3.63 percent, off their recent highs of 3.77 percent set last
week.
 (To see an analysis on market inflation expectations click on,
[ID:nN15149987])
 (Additional reporting by Gene Ramos, Robert Gibbons, Gertrude
Chavez-Dreyfuss, Chris Reese and Rodrigo Campos; editing by )