* MSCI world equity index up 1.1 pct at 239.99
* Banks lead the way on possible UK bank stake sale
* Dollar, yen falls; oil hits 6-month peak above $60/bbl
By Natsuko Waki
LONDON, May 19 (Reuters) - World stocks rose for a third day
running on Tuesday with banking stocks leading the gains in
Europe, while oil hit a six-month peak.
Bank stocks rallied on Wall Street on Monday after sources
said major banks may soon repay government bailout funds.
Britain has held talks with investors to gauge their
interest in buying its stakes in part-nationalised banks and
could begin selling its holdings within a year, according to a
source familiar with the matter. []
UK Financial Investments, which manages Britain's stakes in
Royal Bank of Scotland <RBS.L> and Lloyds Banking Group
<LLOY.L>, has sounded out investors who may be interested in
buying some of its holdings, the source said.
Last week's pullback in the benchmark MSCI world equity
index <.MIWD00000PUS>, coming after nine weeks of uninterrupted
gains, proved short-lived as expectations that the worst of the
global downturn might be over prompted investors to buy back
risky assets.
"Overall the market is again playing on the possibility that
we may be seeing the end of the global recession and that is
pushing risk appetite up," said Antje Praefcke, currency
strategist at Commerzbank in Frankfurt.
The MSCI index rose 1 percent to hit a one-week high, while
the FTSEurofirst 300 index <> added 0.9 percent. Banking
shares <SX7P> were one of the biggest risers on the day.
IMPROVING RISK SENTIMENT
Wall Street rallied on Monday after No. 2 U.S. homebuilder
Lowe's <LOW.N> raised its full-year forecast due to signs that
the housing market's decline may be ebbing.
Lowe's positive results come ahead of Tuesday's U.S.
building permits and housing starts data, which should shed
light on how the housing market -- the epicentre of the almost
two-year credit crisis -- is faring.
U.S. banks rallied after sources familiar with the situation
said Goldman Sachs <GS.N>, Morgan Stanley <MS.N> and other banks
have applied to repay building of dollars they borrowed under
the U.S. government's Troubled Asset Relief Program. []
State Street <STT.N> also said it was selling $2 billion of
stock and will sell notes to help repay government bailout
funds.
Wall Street's fear gauge, the VIX index <.VIX>, fell to as
low as 30 on Tuesday, its lowest since the week after Lehman
Brothers filed for bankruptcy.
Emerging stocks <.MSCIEF> rose 2 percent.
U.S. crude oil <CLc1> rose 2 percent to $60.18 a barrel
after hitting its highest level since early November.
Oil prices have risen from a near five-year low of $32.40
touched in December, tracking gains in stock markets over the
last few months as investors looked to equities for signs of
recovery in the economy and ailing oil demand.
The June Bund futures <FGBLc1> fell 62 ticks.
The dollar <.DXY> fell 0.3 percent against a basket of major
currencies. The yen lost around 0.4 percent to 96.63 per dollar
<JPY=>.
"The yen remains vulnerable as firmness in stocks bolsters
risk appetite, with people encouraged to buy higher-yielding
currencies," said Tsutomu Soma, senior manager in the foreign
securities department at Okasan Securities in Tokyo.
(Additional reporting by Naomi Tajitsu, editing by Mike
Peacock)
