* MSCI world equity index up 0.4 percent at 271.14
* Euro zone services, manufacturing PMI better than expected
* Euro, oil firmer; government bonds fall
By Natsuko Waki
LONDON, Aug 21 (Reuters) - World stocks rose and the euro
hit its highest in nearly one month against sterling on Friday
after the euro zone manufacturing and services survey showed
significantly bigger improvement than expected.
The survey by Markit showed the decline in the euro zone's
dominant services sector almost came to a halt in August and
businesses' expectations for the future soared to their highest
level in more than two years.
Manufacturing activity contracted at a far slower pace than
expected and output rose for the first time in 15 months. In the
Germany survey, its composite index rose above 50, indicating
the private sector surged back to growth in August.
"We think PMI, especially moves above 50, is very positive.
In that context equities should have a bit of a boost. This
should support pro-risk trade and pro-risk currencies... the
euro as well," said Naeem Wahid, strategist at Bank of Scotland
Treasury.
MSCI world equity index <.MIWD00000PUS> was up 0.4 percent
while the FTSEurofirst 300 index <> gained 1.2 percent.
U.S. stock futures <SPc1> pointed to a firmer open on Wall
Street later.
Emerging stocks <.MSCIEF> were steady. Chinese stocks
<> rose 1.7 percent, led by banks after strong earnings
reports, although they posted their third weekly loss in a row.
"The most decisive thing now is the Chinese stock market and
as long as the Chinese market holds up, the risky assets will
hold as well," said Koen De Leus, economist at KBC Securities.
Fears about liquidity in China this week drove outflows from
global emerging market stocks to the highest of the year, with
investors shifting to bonds instead, according to fund tracker
EPFR Global.
Global emerging markets equity funds saw $946 million flow
out in the third week of August, with the lion's share of $810
million redeemed from Asia ex-Japan stock funds. China equity
funds had their worst week since early in the first quarter of
2008.
Global bond funds tracked by EPFR, coming off a record month
of inflows in July, took in a net $954 million in fresh money
this week.
EURO HIGHER
The euro rose to 86.79 pence <EURGBP=>, its highest in
nearly one month, while against the dollar it hit a two-week
high of $1.4334 <EUR=>.
The low-yielding dollar <.DXY> fell 0.5 percent against a
basket of major currencies as investors bought into riskier
currencies.
However, concerns about volatility in Chinese stocks pushed
the yen, also low-yielding, to a one-month high of 93.49 per
dollar <JPY=> earlier.
Sources said earlier this month China's banking regulator,
concerned record lending could lead to a spike in bad loans, may
tighten banks' capital rules by excluding subordinated bonds
they sell to other banks from their capital base. A similar
report on Friday re-focused attention on this issue.
U.S. crude oil <CLc1> rose 1 percent to $73.67 a barrel.
The September bund futures <FGBLc1> fell 14 ticks.
(Additional reporting by Atul Prakash)
