* World stocks extend rally, just below year high
* Wall Street set for gains
* Dollar weaker in thin trade
By Jeremy Gaunt, European Investment Correspondent
LONDON, Dec 29 (Reuters) - World stocks floated below year
highs on Tuesday, extending a year-end rally with Britain's FTSE
rising to pre-Lehman levels.
Wall Street looked set to join in with gains at the open.
Holiday-affected trading was thin, but risk appetite
continued to dominate on most markets.
The dollar was weaker, 10-year euro zone government bond
yields hit 6-week highs and the cost of insuring European
company debt through credit default swaps fell to a year low.
MSCI's all-country world stocks index <.MIWD00000PUS> was up
about a third of a percent. It was around half a percent below
its 2009 high, reached on December 3.
The index has gained some 32 percent this year and is up
nearly 75 percent from a low on March 9. This has come as
investors have put worries about a major world financial
collapse behind them.
European shares gained, with the FTSEurofirst 300 <>
up 0.4 percent, rising for the sixth consecutive session.
"Europe is up some more today, but obviously volumes are
very low, with most traders away from their desk. We expect
there to be low volume sessions right up until the New Year,"
said Manoj Ladwa, senior trader at ETX Capital.
Earlier, Japan's benchmark Nikkei <> spent much of the
day in negative territory before edging up a mere 3.83 points at
10,638.06.
But it did hit a fresh four-month intraday high of 10,683.12
in early trade.
"Investors seem to be using the last days of this year to
search for theme stocks -- companies connected to emerging
markets, which are likely to remain strong next year, as well as
resource-linked shares," said Noritsugu Hirakawa, a strategist
at Okasan Securities.
WEAKER DOLLAR
The greater risk appetite among those investors who were
trading weakened the dollar while the euro and higher yielding
currencies such as the Australian dollar gained.
With volumes very thin, analysts were wary of drawing too
many conclusions from current intraday movements, with the euro
still trading within its recent range against the dollar, albeit
at the top end.
Against the yen, the dollar stayed supported.
The dollar was a third of a percent down against a basket of
major currencies <.DXY>. The euro was at $1.4445 <EUR=> and the
dollar bought 91.63 yen <JPY=>.
Ten year-euro zone government bonds were yielding 3.372
percent.
(Additional reporting by Joanne Frearson; Editing by Chris
Pizzey)
