* MSCI world equity index up 0.1 percent at 343.35
* Europe, Asia hold below recent highs
* Oil, dollar fall
(Adds quotes, updates prices)
By Natsuko Waki
LONDON, Feb 8 (Reuters) - European stocks and oil prices
turned lower on Tuesday after China raised interest rates for
the second time in just over a month, intensifying its fight
against inflation.
The commodity-sensitive Australian dollar also fell but
world stocks still held near the previous day's 29-month high as
China's monetary tightening did little to immediately change the
favourable outlook for global growth this year.
Recent strong manufacturing and services sector surveys
around the world and a fall in the U.S. unemployment rate point
to sustained momentum in the global recovery, while China's
latest move is seen as proactively tackling inflation problems.
"Global markets may begin to see the frequent rate hikes as
a sign that growth slowdown in China is inevitable, which could
briefly weigh on market sentiment," said Dariusz Kowalczyk,
senior economist at Credit Agricole CIB in Hong Kong.
"But in the end the move will be seen as a sign of strength,
with solid growth momentum allowing policymakers to raise rates
-- and... global markets should respond positively to such moves
aimed at controlling inflation."
The MSCI world equity index <.MIWD00000PUS> was up 0.15
percent, having hit its highest level since August 2008 on
Monday. The Thomson Reuters global stock index <.TRXFLDGLPU> was
still up around 0.1 percent.
The FTSEurofirst 300 index <> fell half a percent,
turning negative after China's move and moving away from the
previous day's 29-month high.
U.S. crude oil was the biggest loser after China's move. It
<CLc1> fell 1.5 percent to $86.18 a barrel as expectations rose
that the higher cost of borrowing may tame oil demand growth in
China, which is the largest energy consumer in the world
according to the International Energy Agency.
U.S. stock futures <SPc1> were slightly higher on the day.
Benchmark U.S. equity indexes hit 2-1/2 year highs on
Monday, with news of multi-billion-dollar mergers reinforcing
expectations that cash-rich companies are confident enough about
the economy to buy up undervalued rivals. []
[]
Emerging stocks <.MSCIEF> were down 0.2 percent on the day.
China is closed for the Lunar New Year holidays.
From Feb 9, China's benchmark one-year deposit rates will be
lifted by 25 basis points to 3 percent, while one-year lending
rates will also be raised by 25 basis points to 6.06 percent.
German government bond futures <FGBLc1> were steady on the day.
RATE MOVES EYED
The Australian dollar <AUD=D4> fell around half a U.S. cent
to $1.0130, tracking commodity prices lower after China's move.
In the broader currency market however, the focus was on
U.S. and euro zone monetary policies. The euro recovered on
Tuesday, having been under pressure after last week's comments
from European Central Bank President Jean-Claude Trichet cooled
expectations on the pace of monetary tightening.
The euro <EUR=> rose 0.6 percent to $1.3662 <EUR=> while the
dollar <.DXY> fell 0.3 percent against a basket of major
currencies.
"Our risk-adjusted yield differential indicator has given a
fresh euro/dollar sell signal over the past couple of days and
we look to use any initial corrective rebound today to establish
bearish strategies," BNP Paribas said in a note to clients.
Last week's unexpected fall in the U.S. jobless rate also
sparked a rise in U.S. debt yields. The 10-year U.S. yield
<US10YT=RR> broke above a trading range that had been in place
since early December and U.S. money markets have started to
price in some chance of a U.S. rate hike later this year.
Still, investors are reluctant to buy the dollar
aggressively after Federal Reserve Chairman Ben Bernanke said
last week that the U.S. economy still needs the Fed's help -- a
stance many traders expect him to repeat when he speaks on
Wednesday.
(Editing by Stephen Nisbet)
