* ECB extension of looser funding rules boosts stocks, euro
* Wall Street set for positive open
* Emerging market stocks underperform
By Jeremy Gaunt, European Investment Correspondent
LONDON, March 25 (Reuters) - European shares rose to their
highest level in 17 months and the euro recovered from 10-month
lows against the dollar as the European Central Bank moved to
shore up Greek banks.
Wall Street also looked set for a positive start.
ECB President Jean-Claude Trichet told the European
Parliament the bank would keep its current minimum rating
threshold for collateral accepted against central bank funds
beyond the end of this year.
It will also introduce a system for discounting collateral
from January. []
One key impact of this is that Greek government bonds will
remain eligible as collateral next year even if their rating
drops a bit.
"It is really important they made this statement today to
calm markets that are worried about the Greek situation," said
James Nixon, economist at Societe Generale.
The euro was up 0.4 percent at $1.3361 <EUR=>, having
earlier fallen to a 10-month low of $1.3285.
Investors remain highly concerned about stability in the
euro zone on the back of the ongoing Greek troubles and
Wednesday's downgrade of Portuguese debt.
Diplomatic efforts continued ahead of a European Union
summit to start on Thursday after they failed on Wednesday to
bridge differences over whether to offer a safety net to Greece.
[]
The euro has been punished by uncertainty engendered by what
comes down to a fight about whether one euro zone country should
bail out another.
Dubai's debt issues were also in focus again after the
emirate's government said it would support the restructuring of
debt-laden state-owned firm Dubai World and its Nakheel
subsidiary by providing $9.5 billion in new funding.
Euro zone government bond prices were slightly lower,
catching up with moves in the U.S. Treasury market which sold
off late the previous session after poor demand in a five-year
note auction.
EMERGING UNDERPERFORMANCE
European shares climbed, led by banks. The pan-European
FTSEurofirst 300 <> index of top shares was up 0.7
percent.
This helped lift MSCI's all-country world index
<.MIWD00000PUS> into positive territory for the day, but
emerging market shares <.MSCIEF> were slightly lower, weighing
on the index.
Despite being cited as a favourite by institutional
investors, emerging market shares have underperformed this year
and the MSCI benchmark is barely in positive territory.
Some investors may be pulling back because of concerns that
too much money is chasing too few assets could create a
short-term bubble. []
Earlier, Japan's Nikkei closed up 0.02 percent <>.
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
Blog click on http://blogs.reuters.com/macroscope)
(editing by John Stonestreet)
