* World stocks rise for third trading day in a row
* European shares up 0.7 percent, Japan 3.3 percent
* Euro hits 1-1/2 year low at $1.3237
* Sentiment boosted by Bernanke, French bank aid
By Jeremy Gaunt, European Investment Correspondent
LONDON, Oct 21 (Reuters) - World stocks climbed for the
third day in a row on Tuesday as investors bet governments would
succeed in ending the credit crisis and in controlling the
global economic downturn.
The euro hit 1-1/2 year lows against the dollar.
Sentiment was boosted overnight by comments from U.S. Federal
Reserve Chairman Ben Bernanke, who backed government spending as
a fresh measure to boost the U.S. economy.
Interbank lending rates were also fixed lower on Monday,
fuelling a belief that government rescue plans were beginning to
free up frozen money markets.
MSCI's all-country world stock index <.MIWD00000PUS>, a
broad measure of global stock market performance, rose for the
third trading day in a row and was nearly 12 percent above five
year lows hit on Oct. 10.
It remains down 39 percent year-to-date, however.
"The market wants some kind of concrete economic steps,
jointly if necessary, and Bernanke's comments have raised hopes
that something will be forthcoming," said Hiroaki Osakabe, a
fund manager at Chibagin Asset Management in Japan.
European shares rose in early trade, also extending their
winning streak to a third day, with investors cheered by
Bernanke and French government moves to bolster its banks.
France announced plans late on Monday to lend 10.5 billion
euros ($14.12 billion) to the country's top six banks before the
year end to prop up their capital reserves.
The FTSEurofirst 300 <> index of top European shares
was up about 0.7 percent with banks among the top gainers.
BNP Paribas <BNPP.PA> jumped 6.5 percent, Societe Generale
<SOGN.PA> soared 9.2 perent and Credit Agricole <CAGR.PA> rose
7.8 percent.
Earlier, the Nikkei average <> rose 3.3 percent or
300.66 points to 9,306.25. The broader Topix <> rose 3.2
percent to 956.64.
DOLLAR FIRMS, BONDS WEAKER
The euro fell to its lowest in 1-1/2 years against a broadly
firmer dollar, with the U.S. currency benefiting from ongoing
funding demand.
The euro traded at $1.3256, having hit a low of $1.3237
<EUR=> -- last seen in March 2007.
"General dollar strength is continuing, which is pushing the
euro and sterling lower this morning," said Stephen Koukoulas,
currency strategist at TD Securities.
On fixed income markets, euro zone government bond yields
were flat.
Overnight dollar London Interbank Offered rates were fixed
lower on Monday at 1.51250 percent <USDONMFSR=> versus 1.66875
percent on Friday, while one-week and three-month dollar Libor
were both around 43 basis points down at 2.71875 percent
<USDSWMFSR=> and 3.75125 percent <USD3MFSR=>, respectively.
"Things are calming down," said one trader.
(Editing by Mike Peacock)
