* MSCI world stock index climbs 0.4 percent
* Britain launches scheme to insure toxic bank assets
* RBS posts biggest loss in British corporate history
(Updates throughout, changes dateline, byline)
By Ian Chua
LONDON, Feb 26 (Reuters) - Fresh steps by the British
government to shore up the ailing banking sector helped European
stocks shrug off a negative lead from Asia on Thursday and took
the shine off dollar gains versus major currencies.
But worries about the Japanese economy kept the yen under
pressure.
European goverment bonds, already hit by the improved tone
in equities, were further weighed by looming debt supply from
Italy, the UK and the United States.
Britain launched a scheme that could end up insuring more
than 500 billion pounds worth of toxic bank assets as Royal Bank
of Scotland <RBS.L> posted a 24.1 billion pound ($35.3 billion)
loss for 2008, the biggest in British corporate history.
Investors, bracing for an even bigger loss from RBS, drove
the bank's share price up 30 percent as the troubled lender also
said it would place toxic debt in the state insurance scheme.
The FTSE 100 index <> rose 2.2 percent, while the
pan-European FTSEurofirst 300 index <> of top shares
climbed 1.8 percent.
MSCI's main world stock index <.MIWD00000PUS> advanced 0.4
percent to 190.95, outperforming its index for Asia Pacific
stocks, excluding Japan <.MIAPJ0000PUS>, which slipped 0.5
percent.
Analysts however were sceptical that gains will be sustained
given underlying worries that governments will step up oversight
of the banking sector, worries that knocked Wall Street lower
overnight.
"I don't see a reason for a rally. The earnings are all on
the wrong side," said Bernard McAlinden, strategist at NCB
Stockbrokers in Dublin. "There's very little good news."
In Germany, the unemployment ranks swelled in February by
40,000 from the previous month, although it was slightly lower
than a forecast rise of 60,000 in a Reuters poll.
The Japanese government, which is battling its worst
recession since World War Two, is reportedly considering asking
the central bank to buy stock exchanged-traded funds as share
prices hovered near 26-year lows.
Worries about the world's second biggest economy helped
knock the yen to a three-month low against the dollar.
The dollar rose towards 98 yen <JPY=>, the highest since
mid-November, while the euro <EURJPY=R> climbed 0.6 percent on
the day to 124.78 yen, not far off a 1-1/2 month high of around
125.18 yen set a day earlier.
"It almost feels like 100 (yen) has a magnetism of its own
that it's gravitating towards but going into March the risk is
increasing that we get a very sharp pullback," said Adam Cole,
global head of FX strategy at RBC Capital Markets.
But against a basket of major currency rivals, the dollar
turned lower <.DXY> in a reflection of a slightly brighter
attitude towards riskier assets.
BOND SUPPLY EYED
Meanwhile, euro zone government bonds fell, pushing yields
higher as investors braced for nearly 11 billion euros of
government debt from Italy.
"If (Italy) does the maximum (amount) I'd expect the market
is going to price in some sort of concession before it. It's a
decent block of bonds, and along with the (UK) gilt supply, it
may just weigh on prices a little bit," a bond trader in London
said.
The 10-year euro zone yield <EU10YT=RR> rose 8.3 basis
points to 3.069 percent, while the two-year yield <EU2YT=RR>
gained 7 basis points to 1.32 percent.
U.S. Treasury yields were also mostly higher ahead of a $22
billion auction of 7-year bonds, part of a record $94 billion
debt supply this week. The 10-year <US10YT=RR> climbed 0.7 basis
points on the day to 2.939 percent.
(Additional reporting by Brian Gorman, Emelia Sithole-Matarise
and Kirsten Donovan in LONDON; Editing by Victoria Main)
