* World stocks rise for 3rd day on recovery rally
* Euro hold onto gains in Thursday's short-covering rally
By Dominic Lau
LONDON, May 28 (Reuters) - World equities rose for the third
straight day on Friday as investors scooped up beaten-down
stocks and the euro held on to the previous session's hefty
gains against the dollar.
Crude prices advanced to $75 a barrel, touching a two-week
high, and the cost of protection against government debt default
in Greece and other peripheral euro zone sovereigns fell in low
volumes.
Fears that Greek's financial crisis could infect other euro
zone countries had sparked a sell-off in financial markets
around the globe.
The euro <EUR=> was flat versus the dollar at $1.237 on
Friday. It has fallen 7 percent against the dollar this month
and is set to register its sixth consecutive monthly loss.
"The trend is clearly there for more euro weakness and the
focus will be on what is happening to the Spanish banking sector
and whether there is anything that could ruin this recovery in
risk appetite," said Carl Hammer, SEB currency strategist in
Stockholm.
"But the market has come to a more mature level (in
euro/dollar) and the euro could rebound short-term due to
extreme short euro positioning."
The single currency gained more than 1.5 percent against the
dollar on Thursday after China reffirmed its commitment to
diversify currency holdings away from the greenback and denied
it was reviewing its holdings of euro assets. []
Euro gains came despite comments on Friday by a Spanish
government spokesman who said talks with unions and business to
overhaul Spain's rigid labour laws were going badly, casting
doubt over reforms crucial for reassuring markets about the
country's long-term solvency.
STOCKS REBOUND
Global equities measured by the MSCI All-Country World Index
<.MIWD00000PUS> advanced 0.7 percent, gaining for the third
consecutive day. The index, however, is down 9.1 percent this
month, on track for its worst monthly loss since February 2009.
Stocks were also helped by a relatively strong economic
picture in the United States and emerging economies, as well as
robust corporate earnings.
Europe's FTSEurofirst 300 <> index put on 0.4 percent,
while Tokyo's Nikkei average <> added 1.3 percent in its
best one-day performance for two weeks as exporter shares
climbed on a halt in the yen's advance.
Some analysts, however, were more pessimistic about the
equity market outlook.
"This recovery rally could soon hit resistance on the
upside. This week's low point wasn't the capitulation point, so
the risk is still on the downside," said Alexandre Le Drogoff,
technical analyst at Aurel BGC.
Five-year credit default swaps on Greek government debt fell
to 655 basis points (bps), 27 bps tighter than on Thursday,
according to CDS monitor Markit.
The CDS of other peripheral sovereign issuers, such as
Portugal and Ireland also fell.
Yields on benchmark 10-year Bunds <EU10YT=RR> were down 3
bps at 2.686 percent, while those on 10-year U.S. Treasuries
<US10YT=RR> were down 3 bps at 3.3237 percent.
(Additional reporting by Jessica Mortimer, Blaise Robinson and
George Matlock; editing by Jason Webb)
